SOEs Ordered Out of Land Market, Again

Easy money and perverse incentives combined to send real estate prices ever higher, driving land prices to all-time highs in 2016. SOEs were the among the worst actors. The central government told SOEs to get out of the land market in 2010, but they never left, becoming a key player in the 2015-2016 land bubble. Legitimate land needs of developers were swamped by a wave of speculative money looking for a new home following the stock market bust. Many state-owned firms anticipated a government forced consolidation wave, betting that getting bigger would increase their chances to be in the driver's seat. A tidal wave of capital and these incentives combined for a land rush the likes of which preceded two of the past three real estate busts.

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Recently, media reports, most of the central enterprises did not implement the SASAC "check-out order" issued issued at the 2010 Lianghui. In 2016, of the the top 15 land buyers, central and state-owned enterprises took 8 spots.

Just the past year, especially in the first half of 2016, China's land, especially high-priced land market is "national team" occupied half of the country.
Flashback to 2016:
Reform Can Wait: 4 Trillion Stimulus All Over Again as SOEs Pour into Land Market
SOEs and Financial Companies Push Private Developers Out With Insane Land Grab
Ministry of Finance Owned Cinda Real Estate Becomes Land King
Land King High Tide in 2007 and 2010 Preceded Downturns
July 2016: China Real Estate Bubble: Gold Miner Parent Becomes Shanghai Land King
August 2016: Cinda Spends 35 B Yuan for 6 Land King Buys

Several factors drove land purchases by SOEs. First was the speculative nature of the bubble. After the stock market burst in June 2015, China's wave of liquidity had to go somewhere. Some of it flowed through SOEs and investment firms into the land market.
In addition, in the first quarter of 2016, bank lending and social financing were unprecedented, with new loans of 4.61 trillion yuan and total social financing of 6.5 trillion yuan, all exceeding or close to the highest level in history. In the central control of local debt background, the central enterprises with its unique state-owned capital guarantee, collateral and other advantages, access to large-scale low-cost bank credit funds.
Second, land was considered a good asset that won't drop in price, which is why firms such as Cinda, without core real estate business, were among those most aggressively buying land. Third, driving up prices has a direct impact on balance sheets by driving up the value of land banks. Fourth, real estate SOEs are valued in part on assets. With the government contemplating consolidation and reorganization for SOEs, large land banks boosts a company's valuation. Companies believed they would survive a forced consolidation wave if they were the larger firm:
After all, if a central enterprises do not have sufficient land reserves, and from the perspective of corporate valuation in a "weak", most likely to be merged with other central enterprises. Only do large-scale at the same time, access to high prices to do high-cost, to discourage the main business for the real estate of the central enterprises to eat their enthusiasm. And once more "right to speak", the dominant party may also be able to acquire other central enterprises "check out" assets.
And now comes the epilogue, heavily indebted firms with "frozen" land assets that will require far more capital to develop, but credit conditions tightening amid a government push for deleveraging and price stability in the real estate industry.

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