Strong Land Sales in China 1st Tier CitiesAs part of the efforts to tame home prices, local governments are committed to ensure land supply for housing development this year. While other demand-side cooling measures, such as capital gains tax, tougher purchase restriction and higher downpayment requirement may depress the property market too much, a softer approach is to increase land supply-a way that not only abides by central authorities’ direction, but at the same time also helps those heavily indebted local governments to generate more income from land sales.

According to the Ministry of Land Resources, there will be as much as 150,800 hectares of residential land supply entering the market this year. In the first quarter alone, some 56,500 hectares of land were already supplied to the market, representing a 45.5% increase compared with the same period a year ago.

However, instead of viewing it as a cooling signal, property developers see investment opportunities in it. Backed by soaring home prices and strong sales last year, many major property developers reported betterthan- expected financial results in 2012 and some of them are keen to replenish their land reserve, especially for quality land plots in first-tier cities.

Reporting a 35.3% year-on-year growth in gross profit in Q1 this year, China Vanke partnered with Beijing Capital Development to secure two land plots in Tong Zhou, Beijing, in April for a total consideration of RMB 1.42 billion – about 46% higher than the opening prices. Thai Hot Group, on the other hand, paid a premium of 112%, or RMB 1.93 billion to acquire a land plot in the same district in April. In Shanghai, SOHO China won a tender for a land plot in Hong Qiao for RMB 3.19 billion, or RMB 30,244 per square meter, about 48.37% higher than the original price.

According to a quarterly report from the Ministry of Land Resources, average residential land prices in 105 cities nationwide increased an average of 2.07% to RMB 4,702 per square meter in the first quarter of 2013. In term of land sales, data from China Index Academy revealed that 7 out of 10 tracked major cities saw year-on-year growths in sales of residential land plots. Among which, sales in Hang Zhou, Beijing and Shanghai reported respective increases of 20.96 times, 3.81 times and 1.33 times.

While it may be too early to say if high premium land cost will drive up future home prices, it clearly shows the confidence of developers in the property market. Going forward, a large amount of land plots will go on sale in May, including 13 land plots in Beijing and 20 in Shanghai. With land demand in first-tier cities remaining strong, we expect the increasing supply will spark a new wave of buying spree in the land market.