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| Shanghai: New Land Transfer Regime Drives up Industrial Land Prices |
June 25, 2007 |
| “Multinationals have strong demands for industrial facilities and land, yet macro control has constrained their supply”, says Jeremy Chapman, director of China Industrial, Colliers International. This, he says, will drive up Shanghai’s industrial land prices. According to “Shanghai Industrial Property Market”, a report by Colliers International, in May 2007, the average land leasing price in Shanghai’s major industrial zones has risen to USD 112 per square meter, up 10.43% from the end of 2006. But in fact, by “constrained supply”, Mr. Jeremy Chapman referred to the supply under the old land leasing mechanism. Since MLR’s Notice Regarding National Standards for Minimum Price for transfers of Land for Industrial Purposes took effect on January 1, there have been two large-scale public biddings for transfers of industrial land use rights. This change in land transfer policies has resulted in the increase of industrial land prices. “At the start of 2007, the Ministry of Land and Resources ordered that all industrial land-use rights across the country must be granted strictly through auction and bidding. Since then, the average price of Shanghai industrial land has risen by 3.2% q-o-q to RMB 879.4 psm.” says Andrew Hatherley, Executive Director, Industrial & Logistics Services, CB Richard Ellis in Greater China. In a new and more stringent round of macro control, the Ministry of Land and Resources has especially tightened control on industrial land use, focused on curbing its low-cost over-expansion. Meanwhile since this January, the transaction of industrial land across China has been put under market rules, with a new land transfer regime via public bidding, listing and auction methods. In all cities in the Yangtze River Delta, overall land prices are climbing at moderate rates, with stable prices for commercial and residential land, yet evident increased prices for industrial land, according to Yangtze River Delta Urban Land Price Report 2006, published on June 4 this year by the Department of Land Utilization under the Ministry of Land and Resources, and China Land Surveying and Planning Institute. Under the new land-use regime, prices for factory land have been soaring in Shanghai since the last quarter last year, says Mr. Hatherley, “taking the example of the four industrial plots first granted through ‘bidding, listing and auction’, their starting bidding prices were already evidently higher than the then price level of industrial land in Shanghai.” More expensive “flour” will surely result in more expensive “breads”. According to the above-mentioned report by Colliers International, the current average vacancy rate in Shanghai’s major industrial areas is 3.12%, down 0.98% from the end of 2006. The continued drop of vacancy rates will in time lead to a sustained rise of average rentals for industrial facilities in major industrial areas. It’s estimated that in Shanghai’s major industrial areas, the average rental will remain stable in 2007, while sale prices will rise by 2% to 3%, Jeremy Chapman says. Yet Mr. Andrew Hatherley still believes that “in the coming year, ROI rates of Shanghai’s industrial properties will drop from the current 9%~10% to 8%~8.5%”, based on his estimate that the stringent “bidding, listing and auction” regime will drive up the average transfer price of industrial land. “This will directly cause a drop in the ROI of Shanghai’s industrial real estates.” “In the competition among industrial areas, competitiveness will shift from low prices to better services; the zealous ‘enclosure’ movement in some areas will be curbed, and this will level off the developing of industrial land.” says Wang Chengzhi, Senior Manager of Industrial Department at Jones Lang LaSalle, “The high costs and long development cycles in the primary will also divert more and more developers to the secondary market. They will acquire existing logistics facilities, refurbish them and put them into market.” http://house.focus.cn/news/2007-06-25/328174.html |
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