Major Chinese cities have seen the return of large private builders and smaller local developers to land auctions, while private industrial companies have also started buying land in first-tier cities.

Twenty-one private developers ranked among the top 100 by newly acquired land value in the first seven months of this year, compared with 18 for the whole of last year, according to data from Purui Real Estate Research. They have been particularly successful at land auctions in cities such as Hangzhou, Chongqing, Wuhan, Changsha, Dalian, and in first-tier cities like Beijing and Shanghai. The momentum has continued into this month.

For instance, Hebei province-based Xinjie Real Estate bought a residential plot in Beijing’s Fengtai district for over CNY1 billion (USD144.7 million), paying a premium of 16.4 percent, while Shanghai-based Dahua Group acquired a plot in the city’s Minhang district for CNY3.7 billion at a 41 percent premium. In addition, Jiangxi province-based Xinxiao Real Estate Development won a residential site in the provincial capital Nanchang at a premium of more than 40 percent.

Despite the growing appetite for land acquisitions among private builders, it is premature to conclude that the market has fully bottomed out, Song Hongwei, co-dean at Tongce Research Institute, told Yicai. Sorting out debt and completing presold home deliveries remain the top priorities for most private developers, Song added.

An increase in buying by private builders doe not equate to a market bottom, Liu Shui, enterprise research director at China Index Academy, said to Yicai. Most firms active in the land market are long-established regional players that have weathered the market correction, Liu noted, adding that they generally maintain sound operations and focus on business around their headquarters, with examples including Hangzhou-based Binjiang Group and Xingyao Real Estate, as well as Shanghai-based Dahua Group.

Only a small subset of private developers are actively bidding for land, Song pointed out. Few locally rooted and financially robust companies have the capacity and willingness to compete for high-value plots in core cities, Song stressed.

In addition, some private industrial firms with ample cash have also emerged as bidders at recent land auctions. For example, Yinsheng Fanmei Real Estate Development, whose major shareholder is Liaoning Yinsheng Cement Group, won the bidding for a residential plot in Beijing’s Shunyi district this month after being set up specially for the auction.

Shanghai Dingxin Huazhan Enterprise Management, another newly established private developer counting nickel giant Tsingshan Holding Group and affiliates of polyurethane materials supplier Huafeng Group as main shareholders, secured an auctioned land parcel in the city’s North Bund area earlier this month.

The newly formed ventures backed by industrial capital are expected to tap third-party builders for development management services, Song pointed out, since they lack expertise in property development and will likely engage professional managers to run their projects, with service providers collecting fees and potentially sharing in excess profits, Song added.

Source: Yicai Global