Evergrande surrenders two land parcels to Chengdu’s government after letting them sit idle for a decade

Idle land ‘is objectively detrimental to local development’, says analyst
Construction on 259,000 square meter and 84,000 square meter plots should have started in 2010 and 2011, government notices say

China property

Lam Ka-sing

Published: 8:30am, 21 Dec 2021

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Two sites in the Chinese city of Chengdu owned by China Evergrande Group, the world’s most indebted developer, were repossessed by the local government after the company let them sit idle for a decade.

The sites were acquired by a real estate development company under Evergrande in 2010 and 2011, according to two notices on the website of the Longquanyi Municipal Bureau of Planning and Natural Resources Chengdu.

“If the developer keeps the land and does not develop it, the land will become idle, which is objectively detrimental to local development. The government wants to sell the land in the hope of making the best use of it,” said Fu Yongsheng, a lawyer at Shanghai Brilliance Law Firm. Developers set up subsidiaries for projects after obtaining land from the government, he added.

The plots have areas of about 259,000 square meters and 84,000 square meters, respectively. The government notices said that construction on the land should have started in 2010 and 2011.

The government can take back land on which construction has not been started for two years after the designated time without compensation, according to regulations governing idle land.

Evergrande chairman Hui Ka-yan forced to sell pledged shares

In fact, China Evergrande had eight parcels of land taken by the government in Haikou, in China’s southern Hainan province, last week for the same reason. In September, the Anqing municipal government in the country’s eastern Anhui province cancelled the developer’s contract for state-owned land that was to be used for the Evergrande Central Park project after it failed to pay the land price.

“At present, the control of idle land is indeed strict,” said Yan Yuejin, research director at the Shanghai-based E-house China Research and Development Institute. “In light of current land management risks, Evergrande’s current problems will draw more attention [to its unused land],” he said. “To prevent Evergrande’s land from being idle and [projects staying ] unfinished, the local government will also increase its control.”

Similar controls would emerge in other cities in the future, Yan said, which not only reflected the local government’s strict management of idle land of high-risk housing enterprises, but also Beijing’s guidance for the land market.

Evergrande joins Kaisa in ‘restricted default’ after missing payments

Evergrande has more than US$300 billion in liabilities. Earlier this month, Fitch Ratings downgraded the developer from “C” to “RD”, or restricted default, a grade higher than default. This means that a company has defaulted on payments but has not entered into bankruptcy filings, liquidation or other formal winding-up procedures.

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