FT article How the state is propping up
China’s housing market Feb 25 2025
[Here
come the chicken-likens!]There is a long-running meme (‘Narrative’) that the US
must retain its hegemonic status, that countries like Russia, but especially
China must be beaten back before they become equal, OR have fundamental
structural weaknesses which will soon cause them to wobble and fall (Ha! See
the inconsistency here!!)
This
article is a clutching at straws attempt to show China is crumbling. Next time
I’ll have a look at how the Chinese banking system works and what is described
here is the efficacy of the control system over the banks. After that it’s a
post about the amazing house-building market in China
Three decades after China liberalised its property market and ushered in a historic era of
urbanisation, the state is back in force. In Beijing, an FT analysis of the purchases of 440 plots over
eight years shows that government backed developers have acquired more than their private counterparts in each of the last three years. Last year, the number of privately owned plots fell to its lowest level since 2018. Outside the capital, a similar pattern appears to be playing out.
Potentially a stabilising factor in a struggling market, the role of state-owned developers raises the question of how China’s property market will change, as a debt binge and the wreckage it left behind gives way to a new era of tighter government control.
China’s National Bureau of
Statistics stopped reporting data on developers’ overall land purchases in
early 2023, more than a year after the default of China Evergrande fuelled a
liquidity crisis in the sector.
Private developers have not
entirely disappeared, and state-owned and -linked companies have always been a
part of the Chinese property system. But estimates from analysts imply that, in
a still-struggling market, they are taking on a growing role.
“This is a structural change,” says
Zerlina Zeng, head of Asia Credit Strategy at research firm CreditSights.
“After Covid [post-2023] this is getting more and more obvious”.
Zeng’s team closely follows six
developers, five of which are state-owned, and estimates that well over
four-fifths of nationwide land sales last year were state-driven.
A crucial anchor of both the
economy and the government’s fiscal model, the land market was one of the first
metrics to flash red as China’s property boom began to reverse four years ago.
Land auctions provide revenues for local governments, and the construction
industry employs millions of workers.
In the past, developers quickly
recycled funds raised from new housing sales to snap up more plots. But
government revenues from land sales across the country have almost halved since
2021, and China’s first decline in overall property construction by floor area
since 1997, which began in 2022, is accelerating.
The downturn in land sales is
beginning to play out in construction
Source: National Bureau of
Statistics; Wind; FT calculations
New apartments — where prices have
fallen for much of the past two years — are now also largely sold by
state-owned developers. In a report highlighting early evidence of that shift
in 2023, consultancy Capital Economics said a state-led housing sector “should
be less prone to debt-fuelled exuberance” but “may be more prone to wasteful,
misallocated investment”.
Like recent mortgage cuts and
proposed government repurchases of idle land, the dominance of state-owned
developers is interwoven with the government’s efforts to restore confidence in
housing. But it also highlights the deep damage done to China’s property model.
Even the most financially solid state players are mainly active in wealthy
cities, pointing to a lingering challenge elsewhere.
An FT analysis of residential land
auctions from the Beijing Municipal Commission of Planning and Natural
Resources shows that private-sector developers were more active than
state-backed and state-owned firms in 2020, but have since fallen back. Winning
companies were analysed using Orbis, a global corporate database, and
categorised according to their ownership status.
State-backed developers are now
winning the majority of Beijing’s residential land auctions
Source: Beijing Municipal
Commission of Planning and Natural Resources; Orbis: FT research
“For the tier 1 cities like
Beijing, and other wealthy cities, the trend has been more pronounced as the
state-owned developers seize more of the land parcels,” says Jeff Zhang, an
analyst at financial services company Morningstar, who suggests there are now
around 20-30 such cities across China. “Outside of those, we’re not that
optimistic we will see any recovery of land transactions”.
A changing market
Those tier-one cities, which
include Beijing, Shanghai, Shenzhen and Guangzhou, have remained relatively
resilient to the confidence concerns that have characterised the property
slowdown nationwide. Home prices here have fallen, but remain at elevated levels
on an international scale — let alone a domestic one — meaning new projects
still fetch high prices and the prospect of profits for anyone able to finance
them. Increasingly, this means developers with ties to the state.
Close to an area known as the Fragrant Hills in the north-west of Beijing, on land that was home to now-demolished shanty towns, two luxury developments reflect this new reality. One 440-apartment site is a collaboration between Beijing Urban Construction Group and Yuexiu, a state-owned developer from the southern province of Guangdong, roughly 2,000km away.
Two state-backed luxury
developments in the Fragrant Hills area of north-west Beijing © Gilles
Sabrié/FT
“The reason why Yuexiu came to the
north to acquire land is that many private developers have collapsed,” says a
sales rep, adding that regulations limit land purchases by private developers.
“The cost of acquiring land is relatively high for them,” she says, adding that
the process is “government-guided”.
At the second state-backed Fragrant
Hills site next door, where marketing materials make much of the area’s
imperial connections, 50 of the 90 apartments have been sold already (in China,
new properties are typically bought off-plan, before they are complete). They
go for Rmb121,000 ($17,000) per square metre, similar to prices in Manhattan.
High prices like these were a major
concern to policymakers in 2020 when they attempted to rein in the property
market. That year, Beijing restricted borrowing by developers based on balance
sheet metrics as part of a policy known as the “three red lines”.
Because many private developers had
also borrowed heavily on international markets through Hong Kong, subsequent
cashflow pressures showed up in their defaults on offshore bonds. As the cash
crunch intensified, the mainland market became awash with severe construction
delays and unfinished housing projects.
As a result, the role of private
developers in selling new homes has declined markedly. In a report based on
data from 50 developers, consultancy group Capital Economics estimated that
privately owned developers had historically made up two-thirds of sales of new
homes, but in 2023 their share had already fallen to below half. By the end of
2024, the proportion had dropped to around 30 per cent, partly because
Evergrande stopped publishing sales data.
“The state is stepping in to fill
some of the void left by private developers,” says Julian Evans-Pritchard, head
of China economics at Capital Economics, adding that the “shift towards the
state would be even more pronounced in the land market”.
“There are clearly financial
stability advantages to having [state-owned enterprises] playing a greater
role,” he added.
Homebuyers “automatically shift” to
state-owned developers when others default, says Zhang, partly because they
want assurance that projects will be completed. “This is just the cycle going
forward,” he adds.
State control
Although China’s housing market was
liberalised in the 1990s, it retains elements of the state control that
characterised the previous era. Land is leased from the government, and private
developers — which in many cases have close connections to local authorities —
are sometimes partly owned by the state, which in the FT analysis is reflected
by a third “mixed” category of developers.
State-backed companies also form
part of an opaque government machine that can be directed towards any number of
initiatives. In recent years, policymakers have unveiled a host of measures to
support the housing market, including purchases of complete but unsold
apartments that can eventually be used as social housing.
Residential buildings under
construction by the struggling builder Vanke at the Isle Maison development in
Shanghai © Qilai Shen/Bloomberg
There are also widespread signs of local state banks and government authorities intervening to help finish the delayed projects of failed private developers. The troubled Shenzen-based mixed developer Vanke, the latest company to come under the spotlight, saw new management parachuted in from the state-owned Shenzhen Metro, its largest shareholder, last month. This has added to expectations that there will be more direct government support to avoid a default.
Other measures are more subtle.
Zhang at Morningstar says the government previously limited land purchases to
three per year in Beijing, but has lifted those restrictions, which he says
means “the government is essentially encouraging developers to bid more and
spend more in higher-tier cities”.
The One Sino Residence project in
Beijing’s Fengtai district fetched one of the highest auction prices of the
year in 2023 © Gilles Sabrié/FT
As evidenced by the FT’s visits to multiple state-backed sites in the capital, the apartments on offer largely reflect the still-expensive state of the city’s market and show few immediate signs of any difference from private developments. Their showrooms are often finished with fine details, including scrolls of calligraphy and a gaming room with an elevated screen running the breadth of the wall. Several drew heavily on references to China’s ancient past as part of their commercial branding, or included central gardens evocative of the same theme.
There are “more and more good
[quality] houses”, says a sales rep at one of the Fragrant Hills sites. But
nationwide, there are also signs that there are too many of them. Goldman
Sachs estimates there is Rmb30tn of unsold housing inventory, including
land and apartments, in China.
“It’s a lot easier for the
government to control the supply,” says Zeng, adding that the “ideal scenario”
would be to do so through state-owned developers. “There’s not much they can do
on demand.”
Despite repeated cuts to mortgage
rates, restoring demand has so far proved a challenge for policymakers. Even in
wealthy Beijing, there is concern about consumer confidence. According to the
Yuexiu sales rep in the Fragrant Hills, 2024 was “not as good” as 2023.
At the One Sino Residence site in
Fengtai district to the city’s south, the mood is also uncertain. The project
is being run by China Overseas Land & Investment, a state-owned enterprise
that was the biggest buyer of land in both the Beijing area and China last
year, according to Morningstar.
The One Sino Residence will have
more than 87,000 square metres of housing made up of high and low-rise
apartment blocks © Gilles Sabrié/FT
“Now [the market] is basically
state-owned enterprises . . . customers will not have too many
problems with delivery,” says a rep, in reference to the widely-discussed risks
of private developers failing to complete projects.
He receives 30 to 40 prospective
buyers on weekends. But such customers, he adds, are in a “wait-and-see mode”
as they look for further policy announcements that might make a purchase more
attractive.
Beyond Beijing
Analysts of China’s property sector
emphasise the differences between Beijing and the rest of the country. One
economist estimates that, in contrast to the capital, the vast majority of
nationwide land sales are now made by local government financing vehicles
(LGFVs) rather than developers.
As the vehicles are owned by the
local governments in question, the sales “are mainly to stabilise local land
markets, rather than to start new housing projects”, the person added. “Very
few private developers are buying land”.
A policy push launched late last
year, aimed at encouraging local and regional governments to buy up idle land
from developers, points to the depth of the issues. “It is unclear what these
cities plan to do with the land they are acquiring,” wrote analysts at rating
agency Moody’s in a report this month. But the move “is in line with other
recent policies aimed at giving the state a large role in the land and real
estate markets”.
According to FT analysis, after
several years of increases, land sales declined in Beijing in 2024. In poorer
cities and regions, where data is often less accessible and economic activity
is more varied, the picture is probably even bleaker.
Land value and government revenues
have fallen
*aggregate value of land use rights
transferred by the government across 4 first-tier cities, 26 second-tier
cities, and 70 third-tier cities, based on traded land parcels Sources:
National Bureau of Statistics; Wind; Ministry of Finance
“I think we know the situation is
generally worse in many of the smaller cities and the pressure on land sales is
more extreme, and therefore I would imagine the political pressure on
state-owned enterprises to step in would probably be even more significant than
in tier 1 cities like Beijing,” says Evans-Pritchard of Capital Economics.
But the deeper problem is “huge
oversupply that has yet to work its way through the system”, he adds. There is
“still a lot of construction work . . . but once they are finished
they’re not going to be replaced with new projects”.
“I think there’s a temptation [to
say] we’re past the worst,” he adds. “That may be true in some parts of the
market . . . But for construction, which is far more important for
GDP, that is not going to be the case in our view”.
Zeng at CreditSights suggests that
China’s economy has become “more [of a] planned economy with more [of a]
topdown stance”, and moreover that urbanisation has “significantly slowed
down”. The government “just doesn’t need privately owned developers any more,” she
says.
At the privately developed Longfor site, work is expected to complete in September this year. After that, construction workers will need to find a job elsewhere. “This is [the company’s] only project in Beijing,” the sales rep says. For the rest of 2025, she adds, projects are “not yet clear”.
Additional reporting by Andy Lin and Wang Xueqiao
Land sales data from the Beijing
Municipal Commission of Planning and Natural Resources. Plot footprints from
Beijing Platform for Common Geospatial Information Services, Tianditu and Open
Street Map. Company ultimate ownership from Orbis. Satellite imagery used in
the opening from Airbus DS and Planet Labs.
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