Land prices going higher in 2nd half

Homebuyers learn about a commercial property project at a real estate expo in Handan, North China's Hebei province, April 23, 2016. [PROVIDED TO CHINA DAILY]

Continuing trend, with records set for prime sites, expected to squeeze developers

Surging land prices in major cities will probably squeeze real estate developers' profit margins in the second half of the year, said industry analysts on Wednesday.

Land sales in the first half of 2016 exceeded 1.32 trillion yuan ($199 billion), jumping 24.8 percent on a yearly basis, according to statistics from the Ministry of Land and Resources.

In July, the number of the "land kings" - companies winning auctions by bidding record prices for prime sites - rose to 31, hitting a new high.

Experts predicted that land prices will continue to rise in the second half, though the National Development and Reform Commission urged local governments earlier in August to boost the land supply and control the prices.

"Land prices will see a moderate increase in the second half. As the national real estate policies remain unchanged, strong demand is the driving force for property firms to buy land at premium," said E-House (China) Holdings Ltd Executive President Ding Zuyu in a research note on Wednesday.

A resident looks at the model of a high-end residential building at an expo in Hangzhou, East China's Zhejiang province, May 13, 2016. [PROVIDED TO CHINA DAILY]

The prices of some land parcels have exceeded that of sites with existing homes in some cities such as Beijing and Shanghai.

"Given the high land prices, developers may face growing risks of a falling gross profit in the coming years," said a real estate analyst at a local securities company, who declined to be named.

Sixteen listed property developers that have released their interim financial reports, showed total revenue of 213.7 billion yuan ($32.15 billion) in the first six months, demonstrating a year-on-year growth of 31.5 percent, fueled by robust sales and surging home prices.

According to Wind Information, their net profits in the half year grew 18 percent year-on-year.

Zhong Zhou Holdings Co was the only one among the 16 listed developers to post a profit fall.

Its 92.7 percent plunge in profits was due partly to soaring land costs at its projects in Shanghai and Chengdu, the Shenzhen-based company said in a statement.