Structural increases in land prices in first-tier cities may make it difficult for housing prices to fall in the coming one to two years.
Release date:
Apr 28,2015
In 2014, the sluggish housing market persisted for nine long months before showing signs of recovery by October—yet land prices in first-tier cities continued to rise instead of falling. According to statistics from Centaline Property, as of November 18, first-tier cities saw residential land auction proceeds historically surpass 300 billion yuan, with average land prices soaring to 11,892 yuan per square meter. This represents a staggering 57% increase compared to the 7,571 yuan recorded in 2013. Behind this surge in land prices in first-tier cities lies a dual dynamic: First, property developers have flocked to these cities to mitigate investment risks, driving up demand and, consequently, scarcity-driven price hikes. Second, the observed price increases reflect a structural shift, specifically tied to the types of land being offered in the four major first-tier cities.
The sluggish housing market in 2014 persisted for a full nine months, only showing signs of recovery by October—but land prices in first-tier cities actually rose instead of falling.
According to statistics from Centaline Property, as of November 18, first-tier cities saw residential land auction revenues historically surpass 300 billion yuan, with average land prices reaching a staggering 11,892 yuan per square meter—up 57% from the 7,571 yuan recorded in 2013.
Behind the rising land prices in first-tier cities lies, first, the fact that property developers are flocking to acquire land in these cities en masse to hedge against investment risks, driving up demand and, consequently, making land "scarce and thus more valuable." Second, this increase in unit land prices reflects a structural trend: many of the plots being sold in the four major first-tier cities are prime, high-quality locations in core areas, which naturally pushes average prices higher.
The unusual performance of land prices in first-tier cities is a microcosm of the deepening polarization in today's real estate market. However, experts from institutional research centers caution that even first-tier cities aren't "safe havens"—it’s still wise to proceed with caution when bidding on plots with excessively high unit prices or premium rates.
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