Agile Group Holdings Ltd., owner of the most expensive plot of land in Guangzhou city, said it wants to put apartments on the market that sell at double the current market rate in southern China.
The company plans to ask for between 50,000 yuan and 60,000 yuan per square metre when it launches its apartments in western Guangzhou’s Liwan district, Agile’s chairman Chen Zhuolin said during a Tuesday press conference in Hong Kong. The company last week forked out 2.2 billion yuan (HK$2.56 billion) yuan, or a record 35,000 yuan per square metre, for the Liwan lot, measuring 22 acres.
Agile is switching its business to building big-city apartments, after establishing a reputation for building resorts in tourist havens such as Hainan and Yunnan. As a late entrant in China’s fiercely competitive property market, Agile has had to pay a premium to acquire land-use rights, forcing it to go up market.
Still, Agile’s chairman Chen is aiming at a price point that’s double the current market price in the area.
In the Liwan district, considered an older and less developed part of the city lacking in subway access, shopping malls or luxury amenities, the average price for an apartment is less than 20,000 yuan per square metre.
“I don’t think Agile can sell the project at 50,000 yuan per square metre,” said Huang Tao, a project manager at real estate agency Centaline in Guangzhou. Anything “over 40,000 yuan per square metre is already considered luxury in Guangzhou,” he said.
The price of new homes in Guangzhou, China’s fourth-biggest city, rose 4 per cent in the past 12 months, a pace that lags the 41 per cent growth in nearby Shenzhen, 23 per cent in Shanghai and the 15 per cent increase in Beijing over the same period.
Guangzhou’s property prices have room to catch up with Beijing and Shanghai, Agile’s chief financial officer Sam Cheung said.
“Guangzhou’s developement of modern services and amenities such as the financial services and the internet has been lagging other cities in China, so the city is not competitive in attracting qualified professionals,” said Guotai Junan International’s property analyst Liu Feifan. “That has hurt the demand for homes in the city.”
Agile hasn’t been alone in placing outlandish bids on land plots, known as “land kings” in China.
Guangzhou RF Properties Co.’s venture at the Guangzhou Asian Games City is selling for 13,000 yuan per square metre, slightly above its 2009 land acquisition cost of 11,000 yuan per square metre.
That’s taught RF a lesson.
“We will not bid for any more land kings,” RF’s chairman Li Sze Lim said on Wednesday in Hong Kong.
Agile’s 2015 net profit declined for the fourth year in a row to 1.39 billion yuan, while its total debt almost doubled to 40 billion yuan over the same period. The developer’s core net profit ratio was a paltry 4.1 per cent in the first half of 2016, compared with an industry average of 10 per cent, said Han Shitong, deputy director of Guangdong Real Estate Industrial Research Association.
With those figures, Agile should be more cautious, since its operation cost is already so high, he said.
“A land acquisition cost of 30,000 yuan per square metre is not cheap,” not even for land in the glitzy Zhujiang New Town on the banks of the Pearl River, he said.
Guangzhou citizen Irith Zhen agreed.
She would rather pay 60,000 yuan per square metre for a flat in the central business district, instead of Liwan, she said.
“That place is too old and shabby, and there are no good schools around,”she said.