Sunday 22 November 2009
Abundant land supply key to mainland property prices
The mainland’s property markets have become popular investment targets for investors from around the world and both developers and analysts warn that they should bear in mind that a plentiful supply of land in the country could have a bearing on the future price performance of property assets.
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Abundant land supply key to mainland property prices
Yvonne Liu
18 November 2009
The mainland’s property markets have become popular investment targets for investors from around the world and both developers and analysts warn that they should bear in mind that a plentiful supply of land in the country could have a bearing on the future price performance of property assets.
Brokerage CLSA interviewed major players in both the Hong Kong and mainland property markets about their development experiences for the firm’s latest property review and reports mixed results.
Sir Gordon Wu Ying-sheung, the chairman of Hopewell Holdings, told researchers that developing property on the mainland presented a different set of challenges to those encountered in Hong Kong.
“Developing real estate on the mainland, you have to be mindful that taxation is high. You might earn a lot but you do not keep much,” Wu was quoted as saying in the report.
“Also, land on the mainland is relatively unlimited. Most mainland cities have expanded their boundaries by some 200 per cent over the past 15 years,” he added.
Nicole Wong, regional head of property research at CLSA, said the abundant supply of land on the mainland could limit the rate of price growth in some sectors of the market.
“Land supply in Hong Kong is tighter than that on the mainland. Mainland cities, particularly second or third-tier ones, have fewer restrictions over land supply,” she said.
“I don’t think property prices in such second or third-tier cities will continue to rise by a dozen percentage points a year.”
However, prices in first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, where land supply was relatively tighter, would maintain their substantial growth over the next few years, she forecast. “Both local and overseas demand for housing in the first-tier cites is strong. The relatively limited supply may not meet that strong demand.”
According to the brokerage’s report, the average property price in Hong Kong has risen by 7,222 per cent to HK$6,297 per square foot in 1997 from HK$86 per square foot in 1970 and many developers had benefited from these sharp price rises by accumulating a land bank in Hong Kong.
However, this business model might not work on the mainland, Wong said.
“The Hong Kong government has tightened land supply since the 1970s. The high land price policy helped the government to maintain a low tax rate system and generate its major revenues from land sales,” she said. “However, this would not happen on the mainland as [Beijing] is sensitive to the movement of property prices.”
Peter Churchouse, the chairman at property investment firm Portwood Capital, said the mainland government should be mindful of the consequences of a leasehold land system including higher land prices and smaller and higher-priced flats.
“While the mainland has not explicitly adopted a high land price system, the heavy reliance on land sale revenues for local government coffers means there is some incentive for local governments to see property prices rise, be it by restricting land supply or other means,” he said.
Wong said she believed that Hong Kong developers would focus on commercial developments on the mainland rather than residential projects.
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