Sunac China Holdings, which ranks among China’s most active real estate buyers this year, is in talks to acquire more land from other developers because prices at government auctions have risen to “absurd” levels, chairman Sun Hongbin said.
“We’re in talks on many, many projects, big and small,” in cities including Beijing and Shanghai, Sun said in an interview in Beijing. “The prices are all fairly reasonable” compared to open auctions where many land parcels have been sold at prices higher than completed homes, he said.
Sunac is among the 10 Chinese developers with the most acquisitions this year, with five disclosed deals totalling almost $600mn, according to data compiled by Bloomberg. Evergrande Real Estate Group is the biggest acquirer with $5.8bn in four deals. Sunac would carefully manage its cash flows, which remain “very safe,”
Sun said.
Fervent land buying that started in 2014 in China’s biggest cities has spilled over to smaller ones as the nation’s housing market recovered amid policy easing and stimulus. The average price of residential land sold in 29 second-tier cities, many of them provincial capitals like Nanjing, jumped 77% in the first quarter from a year earlier, according to SouFun Holdings.
“While home prices in cities like Beijing, Shanghai, Nanjing and Suzhou are not yet a bubble, there’s already a bubble in their land prices,” Sun said. “If developers want to make money based on those land prices, home prices will have to go much, much higher.”
The company said late Thursday that it’s buying seven projects from Top Spring International Holdings for 4.39bn yuan ($671mn) to enter Shenzhen, the southern Chinese business hub it has long sought a foothold in. Sun dropped a deal to acquire Kaisa Group Holdings about a year ago after talks with the Shenzhen-based homebuilder’s offshore bondholders on debt payments stalled. The average new-home price in the city jumped 60% in the past year, according to SouFun.
Sunac, based in the northern city of Tianjin and long focused on the biggest cities, has since last year entered more second-tier cities like Nanjing, Zhengzhou and Taiyuan as the company searches for reasonably priced slots to replenish its land bank. The company spent about 55bn yuan acquiring 46 projects in the 15 months to March, according to SWS Research Co It remains unclear when the acquisitions can start to boost the company’s gross margin, which fell about 5 percentage points last year, SWS analyst Kris Li wrote in a report in March.
The rapid increases in land prices in Suzhou, a city 30 minutes from Shanghai by high-speed train, have made it “risky” for aggressive bidders like Modern Land China Co, as policy may change when the projects become ready for sale, Mizuho Securities Co’s Hong Kong-based analyst Alan Jin wrote in a report on April 12. The city raised 25.1bn yuan in two days, on April 7 and April 8, auctioning 13 land parcels, with many of the transactions setting records in respective neighbourhoods, Jin wrote. Local authorities took stepsin March to cap price gains.
In Beijing, the sales momentum is continuing. Sunac’s luxury project One Sino Park, built on a prime site bought in 2013 for a record price at auction, is selling for an average of about 170,000 yuan a square meter, making it one of the most expensive residential projects in China, according to Lou Yanqing, deputy general manager of Sunac’s Beijing operations.
The company sold eight of 52 apartments it offered in the 227-unit development in the first week of May when sales started, fetching a combined 500mn yuan in contract sales, she said. Most buyers were successful entrepreneurs born in the 1970s or 1980s, she added.
Home prices rose in 65 of the 70 Chinese cities tracked by the government in April, the most in more than two years, official data released on Wednesday show. Gains in second-tier cities surpassed advances in larger hubs, with prices in the Anhui province city of Hefei jumping 5.7% from March.