New land auction mechanism in Dongguan aims to cool land prices
Jun 12, 2019 (China Knowledge) - Authorities in the manufacturing hub of Dongguan are now looking to rein in its runaway land prices by changing the way its land auctions are carried out.
The city, which is located near Shenzhen has seen its prices surged in recent times as property developers scramble towards the city in an attempt to gain a larger foothold in the Greater Bay Area (GBA).
The land auction mechanism will now award the land to the developer whose offer is closest to the average of the tenders submitted instead of awarding it to the highest bidder which will serve to deter aggressive bidding wars and tactics.
During the first 5 months of this year, Dongguan’s average land premium, which is the amount paid over the starting bid for land auctions, surged to 51% from 13% in the second half of last year. At the same time, the city’s land sales volume has also increased by a staggering 875%.
The GBA which is the Chinese government’s plan to link Hong Kong, Macau and 9 mainland cities to form an integrated business and innovation zone has seen land auctions in the region become increasingly competitive as developers look to increase their market share in the strategically important area.
Developers are now using aggressive land bidding tactics such as launching numerous bids in quick succession until it reaches the “ceiling price” and is declared the winner, locking down parcels of land far before the auction closes.
Furthermore, due to the scarce land supply, some developers are even willing to suffer a loss in order to enter the new GBA market which they deem to be strategically important.
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