THE public auction market for undeveloped Shanghai land this summer has been as sizzling as an August heat wave.

No matter whether the land is located in more downtown areas or on the city’s rural edges, developers are in a frenzy to grab sites and enlarge their “land banks.”

That was underscored on August 17, when Rongxin Fujian Investment Group shocked the property industry by agreeing to pay a record 11.01 billion yuan (US$1.66 billion) for a 31,034-square-meter site in Shanghai’s newly expanded Jing’an District.

The Fuzhou-based developer’s winning bid was equivalent to 100,315 yuan per square meter of gross floor area — in those terms, a record for any residential plot ever sold in Chinese mainland.

When boiled down to terms of saleable living area, the square-meter price is expected to exceed 140,000 yuan.

That’s because the municipal government requires development sites sold in public auction to dedicate part of units built on them to low-cost housing programs, according to Shanghai Homelink Real Estate Agency Co.

“It seems to me to be an extremely irrational price,” Chen Jinshi, chairman of Shenzhen-listed Zhongnan Construction Group Co, told the media in Shanghai the day after the auction result. “Such a high price can’t be justified from a supply-demand perspective, but rather reflects ample liquidity in capital markets.”

Referring to Tier 1 and 2 cities in China, he added, “About 80 percent of the capital in real estate development is now chasing some 20 percent of land resources.”

Chen, who built his Jiangsu Province-based empire from scratch more than 20 years ago, said his company has made some strategic changes in its national expansion plans.

For one thing, Zhongnan, which is listed on the Shenzhen Stock Market, has been pulling back from lower-tier cities to focus on gateway cities like Shanghai, Beijing and their neighboring areas.

In early August, Zhongnan bought a 36,279-square-meter parcel designated for residential and commercial use in the outlying western district of Qingpu for 1.96 billion yuan, a premium of 54 percent.

The gross floor area price was 21,610 yuan per square meter.

The parcel bought by Rongxin Fujian Investment is bounded by Baochang, Gongxing, Linshan and Zhongxing roads and served by three Metro lines.

It is located in what was formerly the Zhabei District before it was merged with Jing’an.

The site is within the Inner Ring Road in an area where most new homes are now selling for between 80,000 yuan and 100,000 yuan per square meter.

“It was a bold decision, reflecting the developer’s strong desire to expand land reserves to facilitate the company’s growth,” said Stephenie Zhou, head of Shanghai residential property at JLL, an international property services provider. “But it is doomed to face big challenges in design, marketing, project operation and management. Rongxin is a mid-sized real estate developer with limited experience in luxury residential development.”

She added, “They cannot expect home prices to rise in tandem with land prices because they are two separate markets.”

In Rongxin’s case, units built on the newly acquired site must sell for 150,000 yuan per square meter or more if the developer is to break even, industry analysts said.

“To some extent, the extremely high price paid by Rongxin and other developers in acquiring parcels of late might help prompt some potential buyers of luxury houses to enter the market earlier, but, after all, supply still remains the ultimate factor,” Zhou added.

While Rongxin’s aggressive move may be partly due to the site’s ideal downtown location, fierce competition at another land auction held recently in Shanghai tends to show that developers are hungry for land parcels no matter where they lie in Tier 1 cities.

On July 27, Shanghai-listed Gemdale Corp beat out over 20 rivals when it paid 8.8 billion yuan, or a premium of 286 percent over the reserve price, for a 140,252-square-meter residential parcel located some 40 kilometers from the People’s Square.

Gemdale’s winning bid was equivalent to 33,023 yuan per square meter of gross floor area, with the saleable area exceeding 41,000 yuan per square meter. The local land authority stipulates that only 80 percent of homes built on the site can be released for general public purchase.

Gemdale’s site is located just a few kilometers from Shanghai Pudong International Airport and reflects a tripling of prices for residential plots sold in the area in the last two-and-a-half years ago, according to industry data.

“Compared with many of its more aggressive rivals, Gemdale has acquired only three land parcels so far this year — and only one in a Tier 1 city,” said Lu Wenxi, senior research manager at Shanghai Centaline Property Consultants Co. “That could be one reason behind the high price it agreed to pay.”

A few days after Rongxin acquired its record-price parcel in Shanghai, the company released its 2016 interim report. It showed the company had purchased nine parcels in public tenders in the first six months of the year. The sites included land in Shanghai, Hangzhou, Fuzhou and Xiamen.

“In the future, the group will continue to explore opportunities in first- and second-tier Chinese cities,” Rongxin said in its report.

The government’s easy money policy is helping grease the wheels of property development.

“Easing monetary policy, a shortage of good asset investment opportunities and the use of leverage all help facilitate the land-buying spree,” said Joe Zhou, head of China research at JLL.

In the case of Rongxin, for example, incomplete calculations show the company raised at least 10.6 billion yuan by issuing bonds since late 2015, the 21st Century Business Herald said in a recent report.

“The cost of issuing bonds has fallen noticeably under a generally loose credit policy, and that helped trigger developers’ enthusiasm for land bank expansion,” said Shanghai Centaline’s Lu.

In the eight months to August 24, 14 Chinese developers have spent more than 20 billion yuan each in land acquisition across the country, according to Centaline.

“While the prospects in Tier 1 and Tier 2 cities, where most developers are now concentrating their attention, remain generally optimistic, the rapidly increasing volume of luxury residential projects in these cities could affect sales,” Lu warned.