(Yicai) Aug. 3 -- The first auction of a plot of land in Shenzhen requiring developers to first build homes before selling them attracted 21 bidders and was acquired by China Railway Real Estate Group for CNY3.4 billion (USD474.8 million).

The plot, located in Bao'an district, has a construction area of 82,000 square meters, and according to yesterday's auction rules, up to 35,000 sqm must first be built on and then sold.

There are two reasons for this condition being set, said Li Yujia, chief researcher at the housing policy research center of the Guangdong Urban and Rural Planning and Design Institute.

First, as it is hard to guarantee the actual delivery of pre-sold units, builders need to be pushed into a situation where they must sell homes that they have already completed. Second, potential buyers are also more willing to purchase completed units, especially those upgrading who can bear the higher cost and price of existing homes.

The auctioned plot was one of a handful that bidders have not also needed to compete over in terms of the proportion of units they would retain for themselves, as in recent years, an executive at one of the bidders told Yicai.

From a financial point of view, requiring the sale of homes that have first been built is better for developers, he added. In addition, the auctioned plot is in a better location, with complete commercial and transport facilities nearby, so it was not a surprise to find so many builders interested in it, the executive noted.

Shenzhen's government began to include developers’ self-held residential property as a factor in winning land use right auctions in 2017. As one of the conditions, some of the apartments cannot be transferred or sold, but can only be rented out.

Pre-sales of yet-to-be-built apartment began in 1994, with the buyers paying an up-front fee. The mechanism led to an excessively low entry threshold for builders, while consumers shouldered the entire risk from unfinished projects to substandard houses. 

To boost buyer confidence, the Ministry of Housing and Urban-Rural Construction said in January that local governments can advance trials of finished property sales. Shandong, Anhui, Guangdong, and other provincial-level regions have set out pilot plans. Country Garden will trial it in different areas, the real estate giant said on July 14.

Editor: Martin Kadiev