Summary of Key Points
Overall, the pace at which real estate companies are acquiring land continues to decline (the amount of land acquired by the top 100 companies has decreased by nearly 30% year-on-year), but core plots in first-tier cities have become highly sought after, with leading firms willing to pay premium prices for them. Meanwhile, many regions are revitalizing existing land by adjusting land use plans (such as converting commercial land into residential, reducing plot ratios, and removing mandatory infrastructure requirements) to meet the market demand for improved-quality housing. This approach not only optimizes resource allocation but also exacerbates the differentiation among real estate companies—only those with strong financial capabilities and superior product offerings can secure high-quality plots, while smaller firms face difficulties in obtaining land in core areas or are unwilling to develop in remote suburbs.
1. Overall Weak Land Acquisition, but Hot Demand for Core Plots in First-Tier Cities
From January to July this year, the total amount of land acquired by the top 100 real estate companies decreased by 27.6%, and the value of new developments also fell by 25.9%, indicating that most firms are still cautious about acquiring land. However, first-tier cities present a very different scenario:
- Beijing: China Overseas Land acquired two plots in Chaoyang within a week for 13 billion yuan, with one plot on Guangqu Road having a premium rate of 19%, setting a new record for the total price of residential land in Beijing this year.
- Shanghai: Poly and China Resources jointly purchased a plot in Yangpu Binjiang for 16.1 billion yuan, with a premium rate of 35.8%, breaking the regional record.
- Guangzhou: Greentown acquired a plot in Liwan District for 41% above the asking price, located near Subway Line 1.
These plots all share one common characteristic: they are situated in core urban areas with well-developed infrastructure and scarce new residential options—for example, the Guangqu Road plot is surrounded by high-end communities with almost no new housing supply, making it highly competitive among real estate companies.
2. The Logic Behind the Aggressive Land Acquisition by Leading Companies
Why do leading firms invest heavily in land acquisition? The key lies in the certainty of their investments:
1. Scarcity of Location: Core plots are guaranteed to sell easily; for instance, Yangpu Binjiang in Shanghai is a key area for urban development, ensuring future housing prices remain stable.
2. Profitability Assurance: Research by China Post Securities shows that the average net profit margin on land acquisitions by leading companies increased in the first half of this year. These firms have strong management capabilities and can sell their products at premium prices, ensuring a guaranteed return on new projects.
3. Advantages of State-Owned Enterprises (SOEs): The majority of the firms acquiring land are SOEs like China Overseas Land, Poly, and China Resources, which have ample funds, low financing costs, and strong risk resistance, allowing them to make bold moves.
3. Land Use Planning Adjustments: Converting “Inappropriate” Land into What the Market Wants
Many plots in first-tier cities have undergone planning adjustments this year to better meet current needs:
- Beijing Jiuxianqiao Plot: Originally a large-scale development with a plot ratio of 2.8 and a height limit of 60 meters, along with mandatory kindergarten construction, it was divided into two plots. The first plot sold had a reduced plot ratio (2.5) and an increased height limit (80 meters), removing the kindergarten requirement, making it more suitable for residential development.
- Shanghai: Of the 36 residential plots sold in the first seven months, over 20 underwent planning adjustments, with half converting commercial land into residential use and reducing plot ratios.
- Shenzhen: More than half of the residential plots had their plans modified, such as lowering the proportion of commercial space and increasing the residential area to meet the demand for improved-quality housing.
4. The Impact of Planning Adjustments: Increasing Differentiation in the Industry
These adjustments affect all parties:
- For the Government: They help revitalize unused land and optimize resource allocation, addressing the shortage of land for real estate development.
- For the Market: They provide more high-quality residential options (e.g., plots with lower plot ratios and no mandatory infrastructure), meeting the demand for improved housing.
- For Real Estate Companies: Leading firms (SOEs and large private companies) have the funds and product capabilities to secure high-quality plots after adjustments. Smaller firms either lack the funds to compete for core areas or are unwilling to develop in remote suburbs, potentially leading to their elimination.
In short, the real estate industry will become increasingly concentrated, with only a few top performers surviving.
5. Conclusion: The Uneven Heat in the Land Auction Market is the New Normal
The current land auction market reflects a stark contrast: while most firms are hesitant to acquire land, core plots in major cities are being fiercely contested. Land use planning adjustments serve as a bridge between these two extremes, turning existing land into high-quality resources for leading companies and providing better housing options for the market. However, it will become increasingly difficult for smaller firms, and industry differentiation is an inevitable trend. For homebuyers, there will be more improved-quality residential options in core areas, but prices may also rise.