China state-backed developers give back land they acquired when property market was hot

Yuexiu Property, which is backed by the municipal government of Guangzhou, the capital of southern Guangdong province, has returned 12 billion yuan (US$1.6 billion) worth of land to local governments since August. Meanwhile, in July, state-owned China Resources Land returned a plot in Fuzhou, a city in southern Fujian province, which it bought for 920 million yuan in 2014. The developer reacquired it three months later for 947 million yuan after the city’s government offered more lenient terms.

“Since the first half of last year, China’s developers have been swapping or returning land that they purchased back to local governments,” said Shi Lulu, director of Asia-Pacific corporate ratings at Fitch Ratings. “The majority of these developers have state ownership, as they have stronger negotiating power compared to their privately owned counterparts.”

“It is possible that more companies will take similar actions to revitalise their existing land reserves, in line with policy guidance,” she added. Local governments have been encouraged to engage in these negotiations to “reactivate” idle land, ideally without tapping into their own funds. That means they are willing to offer more favourable terms on land usage, such as adjusting floor area ratios, lowering the proportion of self-owned properties and converting commercial projects into residential ones.

As a result, Vanke, which has 33 billion yuan worth of onshore bonds coming due this year, bought back three plots of land in Guangzhou for 2.9 billion yuan in December.