hzrub.com
  • Home
  • Financial Blog
  • Futures Analysis
  • Savings Topics
☰
  • Home
  • Financial Blog
  • Futures Analysis
  • Savings Topics
Land Acquisition Surge May Impact Property Market

Advertisements

In recent months, local governments across China have intensified their efforts to reclaim and manage idle landSince February, several areas in Guangdong province have unveiled plans for land acquisition, totaling over 18 billion yuanFollowing the central government's directives that outline the management of special bond acquisitions of surplus idle land, local policy execution has become notably proactive.

Analysis of various cases shows that it has become common for the price of reclaimed land to be discounted by about 10% to 20% from its original sale priceThere is currently no specific preference regarding the future use of the reclaimed landMany cities at different levels have accumulated a significant amount of idle land that has not been developed for a long timeActivating this stock using special bond funds could greatly reduce the inventory of market plots, which is essential for stabilizing market expectations, particularly in regions where new real estate transactions still witness considerable activity.

Analysts suggest that the next steps involve refining acquisition pricing standards, land reallocation, and exchangesThese improvements can help mitigate inventory issues in the real estate sector and solidify market stability.

The acceleration of land reclamation initiatives is evidentFor instance, on February 11, Changsha City, Hunan Province, launched a campaign to use local government special bond funds to recover idle landThe city's Natural Resources and Planning Bureau noted that decisions regarding reclaimed plots will be made considering market demand and land conditions, with a structured and phased approach to integrating these plots into land reserve plans.

The specifics of this initiative indicate no particular preference for the intended use of the acquired landMoreover, there are no requirements regarding the corporate nature of the land usersAny enterprises that find themselves unable or unwilling to develop these areas can include both currently unsold residential and commercial land, as well as plots under construction but not completed yet

Advertisements

Other low-efficiency land, like old factories and warehouses, as well as properties designated for public services like education and healthcare, are also eligible for reclamation.

Even before Changsha's initiative, multiple cities in Guangdong had already set the paceSince late January, numerous urban centers in the province released information regarding their 2025 initial batch of land reserve projects, leading to the reclamation of 63 plots across nine cities, amounting to a total of 18.3 billion yuanOn February 7, the Zhuhai Natural Resources Bureau announced plans to reclaim 14 parcels of land that span commercial, residential, and hotel uses for a total acquisition value of approximately 6.64 billion yuanThis was labeled as “the first batch for 2025,” and officials from Zhuhai indicated intentions to continue acquiring surplus idle land throughout the year.

As reported by Chen Wenjing, Director of Policy Research at the China Index Academy, regulatory authorities have clearly defined policies that provide guidance for local implementationThe release of announcements for the collection of surplus land acquisitions in various parts of the country has emerged since the beginning of this year.

In November of the previous year, the Ministry of Natural Resources issued specific guidelines for the acquisition of idle land using special bonds, followed by a governmental announcement in December permitting such bonds for land stockpilingOn January 10, 2023, the Director General of the Ministry of Finance stated that local governments could commence such actions, thereby solidifying market confidence as reflected in the subsequent rise of the real estate index by 4% during the following two trading days.

The central government has delineated a clear framework for land reclamation, leading to enthusiastic responses from local authoritiesA review of work reports from 31 provincial governments revealed that at least 15 mentioned matters related to idle land

Advertisements

Guangdong Province was particularly quick to respond, as reflected in its January 15 work report, highlighting plans to effectively utilize special bonds to recover idle land and acquire existing commercial housing for use as guaranteed housing.

But how does this land reclamation resonate within the real estate market? Expectations are positiveThe policies surrounding the acquisition of idle land are anticipated to enhance the supply-demand relationship, improve the liquidity of funds for real estate enterprises, and augment land reserves in key areas.

For instance, within the city of Zhuhai, among the 14 parcels subject to reclamation, eight are designated for residential use, with a combined area of approximately 18 hectares that have surpassed their commencement timelines and remain undevelopedMost of these sites, particularly six located in Doumen District, are held by local state-owned enterprises such as Zhuhai Dahengqin Group Co., Ltd. and Zhuhai Huafa Group Co., Ltd.

When looking at the overall reclaimed land, these parcels account for about 8.5% of the city’s existing undeveloped land, significantly alleviating potential inventory concernsAccording to Zhuhai's recent survey of residential land reserves, as of the end of 2024, the city has 159 residential parcels with a total applicable land area of 802.52 hectares, of which 210.21 hectares are undeveloped, and 592.31 hectares are under construction but incomplete.

With obscured development and sales in a weak market environment, Zhuhai anticipates an accumulation of residential market inventoryData from Central China Real Estate indicates that by the end of 2024, the city will have a total housing inventory of 3.6336 million square meters, marking a slight annual increase of 2.32%. Current trends reflect an average product turnover cycle of about 20.74 months, suggesting a relatively high inventory situation.

In light of this, Zhuhai's real estate companies have adopted “inventory reduction” strategies characterized by continual drops in new product offerings and frequent price reductions in the housing market

Advertisements

According to statistics, in 2024, Zhuhai’s market average price decreased by 7%, settling at 23,600 yuan per square meter.

Focusing on the Doumen District, which also has the highest concentration of inventory in Zhuhai’s residential market, the area has land reserves reaching 900,700 square meters, which accounts for 25% of the city’s totalSuch competitive pressures resulted in Doumen adopting more pronounced “price-for-volume” tactics last year, leading to a year-over-year market price plunge of approximately 11%, exceeding the average decline in Zhuhai as a whole, and a 20% drop in sales.

The situation in Zhuhai appears representative of a broader national trendData from the National Bureau of Statistics indicates that by the end of 2024, the area of unsold commercial housing exceeded 750 million square meters (completed but unsold), marking a year-on-year increase of 10.6%, with residential areas alone rising by 16.2%. Importantly, this statistic does not even encompass the areas under construction or land designated for future development, indicating a broader scope of inventory issues.

Market analysts assert that cities of varying levels currently host significant volumes of “broad inventory,” rooted in parcels that have been out for bidding over a decade agoPrompt and effective action to reclaim this idle land would yield dramatic reductions in available market inventory and could help restore market stability, particularly in zones where new property transactions still experience notable activity despite high levels of broad inventory.

For real estate companies, seizing the opportunity to reclaim land can serve as the quickest and most direct means of revitalizing idle assets and enhancing liquidityAn example from Zhuhai shows that among the residential plots being reclaimed, two prime locations in Jinwan District had the highest acquisition prices, totaling approximately 1.868 billion yuan

These two plots were auctioned in December 2023 for 2.103 billion yuan but had not yet been developedThe acquisition price offered by the government represents approximately 80% to 90% of the original auction price.

Such substantial discounts are commonplace within the recent reclamation initiatives across GuangdongStatistical analysis from the China Index Academy reveals that nearly 70% of the reclaimed parcels are valued at between 80% and 100% of the original transaction price, with over 40% falling between 90% and 100%. Meanwhile, 13% settle in the 70% to 80% price band.

Setting a base acquisition price determined primarily by the land’s market assessment and developer costs offers an effective strategic guide for land recoveryIn a land acquisition application, local governments are also soliciting enterprises’ expected acquisition prices alongside details on tax expenditures the new owners would face after the transfer.

Real estate developers have exhibited interest in forthcoming government actionsMany firms are actively reassessing their holdings in light of these policy shiftsChen Yin, a company president, indicated that for the year 2025, they intend to focus on “depleting inventory, optimizing increments, and reinvigorating land use” in alignment with national policies designed to facilitate asset recovery and better manage inventory practices.

A company insider has further noted, “In fact, even if some idle parcels are not reclaimed for cash flow immediately, restructuring and planning them still offers substantial value.” Examples are already emerging of companies voluntarily reacquiring reclaimed plots at a premium.

In late 2023, Yuexiu Property auctioned land in Haizhu District, Guangzhou, fetching approximately 2.023 billion yuanNotably, this plot was the same piece Yuexiu had previously relinquished for 1.529 billion yuan, indicating a price increase of 500 million yuan between the transaction outflow and inflow

This increase reflects the prospective value brought forth by planning adjustmentsWhen returned, the land was categorized for mixed-use commercial and business development, while upon reclamation, it transitioned into a Class II residential plot, adjusting its buildable area and green space ratios.

Furthermore, towards the end of the previous year, Vanke successfully acquired three residential parcels within the Guangzhou South Railway Station business area at the base priceThese plots were reclaimed through monetary compensation and the return of development indicators, optimizing their plans before re-saleObservers note that this approach of financial compensation for reclaiming scattered plots effectively generates funds for the local governmentThis is pivotal for resolving supply-demand discrepancies at the source of the real estate market and stabilizing price trends.

While the speed of land reclamation has increased, several challenges remain to optimize these initiatives furtherThe question of pricing is paramountAnalysts indicate that presetting acquisition prices based on comparative market assessments typically fall short in covering the financing required by real estate companiesLocal governments face fiscal pressures, and despite the special bonds available to fund land recovery, they are generally hesitant to increase acquisition prices, thereby creating a fundamental contradiction that complicates land reclamation efforts.

Suggestions have been made to refine acquisition pricing standards, considering the starting price from land auctions as a significant point of referenceEconomists have also proposed adjustments to planning conditions and design emphasis without compromising national safety regulations, thus better aligning land usage with current market demands and enhancing overall land resource efficacyAdditionally, there's a push for developing secondary land markets to create conditions for future special bond exits.

Presently, there is a concentration of reclamation efforts among state-owned enterprises, which could dissuade participation from private enterprises

Advertisements

Advertisements

Facebook
Whatsapp
Twitter
Linkedin
Pinterest

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Post
  • Soaring Inflation Triggers Market Turmoil
    June 5, 2025
  • Experience the Acceleration of Bond ETFs
    June 26, 2025
  • US Inflation Data Rises Across the Board
    July 3, 2025
  • BTR's Overseas Market Expansion Gains Attention
    May 26, 2025
  • Global Trade Disruptions
    June 19, 2025
Categories
  • Financial Blog
  • Futures Analysis
  • Savings Topics
Follow Us On
hzrub.com
Useful Links
  • Home
  • Financial Blog
  • Futures Analysis
  • Savings Topics
Popular Posts
  • Soaring Inflation Triggers Market Turmoil
  • Experience the Acceleration of Bond ETFs
Copyright © 2024. All rights reserved. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. | Privacy Policy | Website Disclaimer | Contact us