With new legislation set to take effect as of January 1 next year many major players in the real estate industry in China are locked in major bidding wars currently in heated competition with each other in order to snatch up as much land as they can as quickly as possibly in order to develop a strong foundation for development. This has led to the most recent price battle drawing to an end at a grand total of $545 million for a roughly 114,000 square meter plot of land in Shanghai, a price roughly 217% more than the initial asking price.

The irony of the matter is that the new legislation that is the cause of instigating these price wars that are continuing up until midnight December 31 was originally designed to prevent just such a thing as this from occurring. The law would require all new purchases after January 1 utilizing bank mortgages to have at least 50% of the purchase price paid back within a year, meaning in the case above that if the deal had closed in January instead of now a grand total of over $272 million would need to be paid back within one year’s time whereas the old law allows for the repayment of the costs to be spread out over a much longer period. This would make any land such as this that will most likely be treated as a “buy to let” plot for the time being in 2010 be feasibly unreasonable to purchase at that price, regardless of intent.

While it is anticipated that the new law will have some effect upon the Chinese housing market eventually the fact still remains that the price wars that are going on before it takes effect are causing prices to sky-rocket. By allowing the bidding wars to take place the value of the land is becoming artificially inflated and real estate development companies are forced to charge extremely high amounts to turn a profit. In the most recent case, for example, the developer would need to charge over $7,500 per square meter alone in order to make some sort of profitable gain out of the venture, effectively pushing up the value of neighbouring land even further.

For individuals not living in China this trend could be seen as a sign of what may be to come in some domestic urban areas where supply can not reach demand and as a result prices are soaring, especially in regards to some commercial property in key locations.