‘Land kings’ rear their heads once again, snapping up the best parcels, regardless of price

Finance Ministry data shows in the first five months, local government land sales totaled 1.17 trillion yuan, an 8.3% rise on a year ago

PUBLISHED : Tuesday, 14 June, 2016, 10:00pm
UPDATED : Tuesday, 14 June, 2016, 10:00pm

China’s state-owned enterprises have been told to scale back on aggressive land purchases, after a flurry of high-profile deals in recent months have been blamed for pushing up home prices.

Citing unnamed developers, Shanghai-based news portal The Paper reported on Tuesday the warning was by various regulators, including the state-owned Asset Supervision and Administration Commission, commonly referred to as SASAC.

The report followed several cases of central SOE-affiliated developers paying record prices for parcels of land in first- and second-tier cities.

Cinda Real Estate, a developer owned by one of the country’s biggest asset managers which is administered by the Finance Ministry, recently paid 5.8 billion yuan((HK$6.8 billion) for a plot in suburban Shanghai.

The record 303-per cent premium over the auction reserve, drove the price close to 48,000 yuan per square metre of buildable area.

The company also snapped up a plot of land in Hangzhou last week, beating 17 other bidders to the punch, with a 12.3 billion yuan offer.

They (SOEs) are doing this to make sure they are ‘too big to withdraw’
Yan Yuejin, E-house China R

Similar stories have emerged in Beijing, Suzhou, Nanjing and Hefei, where previously little known SOEs, including Powerchina Real Estate, China Gezhouba Real Estate Corporation Ltd, and China Jinmao Holdings Group Ltd, also paid hefty premiums to win bids.

Centaline Property data shows that as of May 31, 105 so-called “land kings” — defined as those paying over 1.5 billion yuan for a plot — have spent a record 328.8 billion yuan, among them 52 deep-pocket SOEs that spent 178.5 billion yuan.

Finance Ministry data shows that in the first five months, local government land sales totaled 1.17 trillion yuan, an 8.3 per cent rise on a year ago. In May alone, revenue soared 21.4 per cent.

The acquisitions have spurred renewed public discussion on whether state land purchases are good for the market and represent fair play, given the cheap funding available to SOEs, a phenomenon hotly debated in China, translated as “the State advances while the private sector retreat”.

In one example, Poly Real Estate, a central SOE, sold a 2.5 billion yuan, 5-year corporate bond at a coupon of 2.95 per cent, the lowest this year.

The high premiums being paid by SOEs for land are also lifting the unit cost for plots, raising concerns over the commercial viability of projects.

Agencies estimate that Cinda would need to sell resultant units on the land it paid for 48,000 yuan per sq m, at around 80,000 yuan to turn a profit. Home prices on adjacent land now sells for 46,000 yuan.

However, industry insiders say making a profit is just one motivation behind these SOEs’ relentless acquisition, with influential magazine Caixin suggesting that growing the book value of their land assets the greater incentive.

A similar “kings” land grab prompted the government to ask 78 central SOEs in 2010, whose main business was not property, to withdraw from the market altogether.

But still today many remain active.

“Now they (SOEs) are doing this to make sure they are ‘too big to withdraw’,” said Yan Yuejin, an analyst with E-house China R&D Institute.

There are signs the central government is becoming increasingly concerned by the land-acquisition spree, with The People’s Daily already running a strong editorial earlier this month warning of the dangers of speculating on land and property.

“Trees cannot grow to the sky,” it said, “neither can home prices.”

Asked about the re-emergence of land kings, Sheng Laiyun, a spokesman for the National Bureau of Statistics, told a news conference on Monday that the phenomenon deserves “high attention” as “land kings” sent negative signals to the market.

Also on Monday, a parcel of land in Hangzhou sold at a 37.3 per cent premium, which was actually considered well below expectation.

But Yan said he is not expecting any major cooling off, even with the latest curbs.

“Unless SOEs are banned from bidding for land altogether, these firms will continue to outweigh private developers in the auction and push up prices,” he said.