State-owned Shanghai New Huang Pu Real Estate (600638.SH) and Shanghai New World (600628.SH) won a joint bid for a prime parcel of land for commercial development in Shanghai for just under US$500 million. Located in Huangpu district near the Nanjing Lu shopping district, the 13,709 square-meter site has a potential gross floor area (GFA) of 65,743 square-meters. It was originally bought by Nanjing Suning Real Estate Development for US$644 million at the peak of the property market in 2007, but the transaction was never completed due to delays in subway construction work underneath the lot.
The fact that the winning bid was 22% lower than what Nanjing Suning paid suggests that a sense of normality is returning to the market – but at US$7,600 per square meter GFA, the deal still makes the site reportedly the most expensive in the country. The previous record was set recently by Shanghai Zendai (0755.HK), which paid US$1.4 billion for a site also in Huangpu, equating to US$4,040 per square meter GFA.
The government is keen to prevent bidding wars and developers are equally aware that the cash taps are now slowly being tightened. Land-banking came fast and hard in 2009 as developers always expected Beijing’s “moderately loose” monetary policy to be a short-lived one. The market is unlikely to see land bids match the heady days of 2007 but prices are will remain high as demand for prime locations retains its upward trajectory.