Can the 'world's factory', Dongguan, tame its runaway land prices by changing auction rules?

By Zheng / | June 18, 2019 1:52 PM SGT
Authorities in Dongguan, a major manufacturing hub near Shenzhen, have changed the way land auctions are carried out in a bid to cool the sizzling market.
It comes after a flurry of aggressive bidding wars involving developers desperate to get a foothold in the Greater Bay Area drove Dongguan's land prices to unprecedented levels in the first five months of the year.
Under the new mechanism, instead of awarding the land to the highest bidder, it will go to the developer whose offer is closest to the average of the tenders submitted.
"The new rule means developers have to guess competitors' bidding prices and offer a price closest to the average level, which will make the market more rational," said Yan Yuejin, research director of E-house China R&D Institute. "Home prices growth should soften amid expectation of tighter curbs."
Land auctions have become increasingly cut-throat as national developers vie for a slice of the action in the Greater Bay Area, the government's plan to link Hong Kong and Macau with nine mainland cities in Guangdong to eventually create an integrated business and innovation zone.
In late April, to deter any potential rivals, Poly Development put in numerous bids in the first three minutes of an auction until it reached the "ceiling price" and was declared the winner. Poly secured the site for 3 billion yuan (US$434 million), 13 days before the auction officially closed. The land price of 14,115 yuan per square metre compared with the average new home price of 18,700 yuan per sq m in the district.
Several other developers have followed Poly's strategy, locking down a parcel of land long before the auction closes.
Analysts said a structural shortage of supply was partly to blame for such extreme tactics, which were within the rules.
"Dongguan's land supply is scarce. Its residential land supply in the last three years, just more than two million square metres per year, falls short of its annual home sales of five million square metres. Over half...