China developers turn to old-charm lower-tier cities for cheaper land bank as prices in Beijing, Shenzhen soar
Taiyuan and Xi’an are top two cities where property developers have picked up more land bank as they avoid soaring prices in top-tier cities. Taiyuan land cost 2,476 yuan per sq m on average in 2019, compares with 2,624 yuan in Xi’an. Both are almost 10 times cheaper than Beijing and Shenzhen
Skyrocketing land prices in Beijing and Shenzhen are forcing some of China’s biggest developers to scour for cheaper land bank in lower-tier cities in northern and western regions while authorities tightened financing to temper credit risks in speculative hotbeds.
Taiyuan, the largest city in the northern province of Shanxi and historical seat of many dynasties, was the top choice in 2019, according to industry researcher Real Estate Foresight, which tracks the nation’s 23 biggest developers. Second ranked was Xi’an, the eastern end of the Silk Road in north-central Shaanxi province and famous for the archaeological site of life-sized terra cotta army.
Chinese developers picked up 65 pieces of land covering 12 million square metres (129.2 million sq ft) of gross floor area in Taiyuan during the first 10 months of 2019, according to the data analytics firm. They also bought 56 plots of land covering 9.02 million sq m in Xi’an, and 8.9 million sq m in southwestern city of Chongqing.
In contrast, they snapped up only 17 pieces of land covering 2.5 million sq m, and two plots in Shenzhen measuring 230,000 sq m, according to Real Estate Foresight.
“Major developers now are looking for land priced at a reasonable level in those big second- and third-tier cities where urbanisation is still ongoing and home demand is still robust,” said Robert Cemniak, founder and chief executive of Real Estate Foresight. “One of the reasons that major developers are interested in such cities is that it could yield higher profit” due to the wider spread between land and home prices, he said.
Both Shanxi and Shaanxi provinces reported a growth rate above the national average in 2018, according to the National Bureau of Statistics. Shanxi’s real gross regional product rose by 6.7 per cent, while Shaanxi recorded an 8.3 per cent increase. They grew 7.2 per cent and 5.4 per cent respectively in the first half of 2019.
The shift away from top-tier cities is also driven by tightening financing and stricter industry regulations for much of 2019 to damp speculation and rein in runaway prices. Last May, the China Banking and Insurance Regulatory Commission banned direct lending to developers before they have secured all necessary approvals to start construction works.
The ban was later expanded to include indirect financing through equity and bond offerings, as regulators seek to control credit risks in a slowing economy. Banks were also later asked to step up their scrutiny on loans to developers and mortgages to home buyers.