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The rules for land auctions in Shanghai have changed again. After restoring the “highest bidder wins” principle, the “double highs and double competitions” policy will be implemented for hot plots of land.

On August 15, the Shanghai Land Exchange Market released the announcement of the sale of the city’s fifth batch of commercial housing land, specifically selling two residential plots in Jing’an District with a total land area of ​​approximately 5.01 hectares and a starting total price of 10.679 billion yuan.

On the same day, according to the "Shanghai Planning Resources" public account, starting from the fifth batch, Shanghai's commercial housing land transfer has implemented a "double high, double competition" approach for plots with higher market popularity. That is, after the bidding completes the previous indicator requirement, it will move on to the next indicator requirement and adopt a gradient competition approach, ultimately achieving the goals of "one plan for one site with high-quality construction" and "market-based allocation, the highest bidder wins."

Industry insiders interpreted that Shanghai is not tightening its policies this time, but further optimizing the land auction standards. By optimizing the standards, the quality of development products will be improved.

The rules for acquiring land have changed from competing on "probability" to competing on "high quality"

It is understood that "Double Highs and Double Competition" includes two rounds of bidding and two rounds of competition for high-quality construction standards.

The "first round of competition for high quality" is to incorporate universal requirements such as green buildings, ultra-low energy consumption buildings, prefabricated buildings, renewable energy, and BIM technology applications into land transfer contracts.

In the “first round of bidding”, for plots of land with high market popularity, a comprehensive consultation mechanism is used before the sale to reasonably set the starting price and determine the differentiated premium space.

The "second round of competition for high quality" will select and apply a series of measures such as "competition for decoration standards", "competition for public facilities and open spaces, etc.", and "competition for high-end talent housing to be transferred to the government free of charge", and bid in sequence.

The "second round of bidding" is to bid again and finally determine the winner on a "highest bidder wins" basis.

The announcement stated that in addition to the original high-quality construction indicators such as green buildings and ultra-low energy consumption buildings, this transfer added three indicators: "competing for decoration standards", "competing for public facilities and open spaces, etc.", and "competing for high-end talent housing transferred to the government free of charge". It encourages market entities to build high-quality housing, improve the public service functions and high-quality public space environment of residential supporting facilities, effectively implement the concept of a people's city, focus on creating a better life, attract all kinds of talents to settle down and develop, and create an environment of livability and working quality.

In June this year, when Shanghai released the announcement of the third batch of commercial housing land transfer this year, it pointed out that starting from this batch, Shanghai will cancel the 10% upper limit requirement for the premium rate of commercial housing land; at the same time, differentiated regulatory measures can be taken for plots in specific areas with higher market heat. When the premium rate exceeds a certain limit, the lottery stage will be entered to guide market players to bid rationally.

In July, in the first batch of residential land transfers after the introduction of the "Nine Measures of Shanghai", Shanghai made major adjustments to the bidding rules, canceling the 10% premium rate capping principle for land auctions since the implementation of centralized land supply in 2021, and the transaction land price was determined by market-based bidding.

In less than three months, Shanghai's land auction rules have been adjusted for the third time. In the view of Song Hongwei, co-director of Tongce Research Institute, this time, Shanghai implemented "double high and double competition" for some hot plots, which is equivalent to replacing the previous lottery stage with high-quality auctions. Previously, developers competed on probability, but after the new rules, they competed on high quality, more on capabilities, products, and management and control.

Song Hongwei further said that "double highs and double competitions" further refines the land auction process. This rule is reasonable and very scientific.

Different from the simple “the highest bidder wins”, it can be seen from the “double high and double competition” and “first round of bidding” that different premium rate spaces may still be set for hot plots.

Chen Julan, senior analyst at China Index Academy in Shanghai, said that the starting price and premium rate of popular plots will be determined through comprehensive consultation before the sale. Differentiated premium rate caps will be implemented for popular plots, which will help companies calculate project premium rates in advance and stabilize the prices of high-quality residential products. While giving full play to the role of market mechanisms, it will create a fairer and more reasonable market environment.

“It’s not a tightening, it’s a further optimization of land auction standards”

At present, the national land market shows a very obvious two-tier differentiation feature.

On July 9, in the first batch of residential land transfer after the release of the "Nine Measures for Shanghai", especially against the backdrop of the abolition of price limits, two plots of land located in Yangpu District attracted fierce competition from many powerful real estate companies.

On the morning of the same day, after 60 rounds of bidding, Shanghai Poly Jianjin Urban Development Co., Ltd., a subsidiary of Poly Development, won the 02H1-01 plot in Pingliang Community, Yangpu District, with a bid of 2.203 billion yuan, a floor price of 88,462 yuan per square meter, and a premium rate of 21.18%.

After 79 rounds of bidding, Beijing Urban Construction + Yuexiu Real Estate won the H2-17 plot in Changbai Community, Yangpu District, with a bid of 2.23 billion yuan, a floor price of 70,272 yuan per square meter, and a premium of 17.12%.

Lu Wenxi, a market analyst at Shanghai Centaline Property, believes that the current land market is very clear and polarized, with good land being good and bad land being bad. Everyone is bidding for good land plots, and it is unclear whether they can maximize their value if they get the land plots without too much pressure. Therefore, it is necessary to control the heat of land auctions by optimizing the land auction standards.

"Shanghai is not tightening its policies this time, but further optimizing the land auction standards." Lu Wenxi said that by optimizing the land auction standards, the quality of development products can be improved. "With so many standards, I don't believe that houses can't be built well. At present, many commercial housing decoration delivery standards are not accepted by buyers and are not satisfied, and there are various disputes."

What impact will the new land auction rules in Shanghai have on the future real estate market? Song Hongwei believes that some popular plots will be built by developers with excellent capabilities in all aspects in the future, such as construction on behalf of others and free transfer, which will increase the company's costs. If a developer can still guarantee profitability, it means that the company is excellent in product creation, cost control, brand influence, etc. Only such companies can create higher-quality products in the future.

Chen Julan said that the adjustment of the land auction policy for popular plots is a specific measure taken by the Shanghai government to respond to the call for "good housing" construction, or a prelude to increasing the supply of high-quality plots. At the same time, it will optimize the allocation of land market resources and improve the benefits of high-quality plots. The newly added "competitive decoration standard indicators" may guide enterprises to make rational use of high-quality plots, build high-quality residential products, and meet people's expectations for improved products; "competitive public facilities and open spaces" emphasizes the construction of residential product communities and improves the convenience of residents' lives; and "competitive high-end talent housing transferred to the government free of charge" is conducive to improving the supply system of affordable housing, accurately attracting and retaining high-end talents, and promoting the balanced development of the regional economy.

Beijing News reporter Duan Wenping

Edited by Yang Juanjuan and proofread by Mu Xiangtong