Asia Economy

Wintery China Land Auction Signals Warming Market

Chongqing, China
Getty Images

Authorities in the eastern city of Qingdao have sold a land parcel for 872.4 million yuan ($140 million) in an auction that set the highest premium of the year, the latest in a series of deals to signal a mild recovery in China's property market.

Guangzhou Liangbao Property Investment and Consultancy Co. paid a 51 percent premium to the starting price for the 149,894 square meter plot for mixed residential and commercial use, in a four-way bidding war in a one-hour public auction.

"It is rare to see such a high land-price premium this year," Zhao Fuan, vice chief of Qingdao Land Resource and Housing Administration Bureau, told Reuters after the auction, held earlier this month.

The next item on the auctioneer's list was a nearby parcel purely for commercial use that failed to garner a single bid.

(Read More: Specter of Capital Flight Slows China FX Reform Drive)

Official figures show only 20 percent of Qingdao land parcels auctioned so far this year have fetched a premium. In metropolitan areas, that premium averaged just 1.82 percent.

Qingdao typifies a trend emerging across China, with a property market recovery confined mainly to the best sites in the best locations and largely in the second half of the year.

Land prices have hit one record after another in Beijing and Shanghai, as well as in provincial capitals Nanjing and Chengdu.

"The land market cooled in the first half of this year, but it has started a mild recovery and gained signs of stability in the second half," said Chen Zukai, a senior official at the department that handles government land sales for Qingdao, a city of 8 million considered one of the most pleasant in China.

(Read More: Coming Soon: China's Growth Resurgence?)

Recovering, Replenishing

Leading developers are starting to replenish their land banks in first- and second-tier cities as sales improve, though total land area bought by developers dropped 14.8 percent in the first 11 months from a year earlier, official data shows.

China Vanke, the country's largest real estate developer by turnover, more than doubled sales in November from a year earlier to 17.13 billion yuan ($2.75 billion).

(

Qingdao has been releasing more land to capitalize on the trend. Supply reached 1.66 million square meters in the first 10 months in the city's metropolitan area, up more than 90 percent compared to a year ago, data from Qingdao Land Resource and Housing Administration Bureau showed.

The rise in land prices coincides with signs of a broadening economic recovery. Growth is expected to pick up in the fourth quarter after slowing for seven consecutive quarters to 7.4 percent year-on-year in the third. The latest benchmark Reuters poll forecasts annual Q4 growth of 7.7 percent.

A recovery in China's land market may fuel market sentiment that rising land costs will drive up home prices again.

Some property developers worry that too rapid a recovery in residential real estate could see more central government curbs imposed on top of existing measures designed to cool prices.

A Reuters poll predicted a 7.0 percent increase in house prices in 2013 - extremely mild considering that real estate prices roughly doubled in 12 months during 2010.

Even so, the consensus of the same poll is that China will not lift restrictions on the number of homes a family can own and that the government will keep curbs to dampen speculation.

China's annual policy-setting conference said on Sunday that Beijing will maintain property controls, including restrictions on how many homes individuals can buy, to ensure China's house prices do not revisit record highs seen in previous years and sow widespread social discontent.