According to financial industry news on December 4 (reported by Wang Haichun), improving the efficiency of idle land use is considered an important aspect of the package of measures to stabilize the real estate market. So, what is the current progress of the related measures?

At a recent industry exchange meeting, a senior executive from a large real estate company stated that recovering idle land is crucial for accelerating the liquidity of real estate companies and is an important measure to boost the market. However, revitalizing idle land involves many areas and faces many detailed operational issues. From the limited observations currently, price-related issues have become one significant factor impacting the progression.

"Some parcels were acquired during peak market periods and thus were at higher prices, leading to differing opinions on whether to repurchase based on current market prices or the prices at which the land was originally acquired. Many parcels face discount issues. If private real estate companies are eager for cash recovery, an agreement may still be reached even if a discount occurs, or it might be considerable; however, for state-owned real estate companies, how to arrange the discounted part also needs to be considered, requiring additional corresponding auxiliary plans for coordination, such as whether land swaps can be utilized to address discount issues. Due to the differing inherent attributes of land resources and the many issues arising during repurchase, including those concerning price, as well as numerous processes that must be navigated, the cycle for repurchasing land parcels may consequently be extended," said the aforementioned real estate management.

In this regard, an analyst from the China Index Academy pointed out that following a deep adjustment in the real estate market since the second half of 2021, fluctuations in housing prices have led to many parcels being appraised at lower values than the prices companies paid to acquire the land during periods of high market activity.

"The starting price at land sales is generally determined based on the appraised value combined with market conditions and other factors at that time. The cost of acquisition is an important reference for various locations during repurchase, while local governments issue special bonds based on land value. Therefore, the starting price during land sales or repurchase prices are important references, which suggests that land previously transacted at a minimal price may achieve more effective liquidation during the repurchase process," stated the analyst from the China Index Academy.

During interviews, reporters learned that the situations reflected by the aforementioned real estate companies are not isolated cases. Some institutions conducting research on revitalizing idle land found multiple ‘bottlenecks’ in repurchasing idle land, where acquisition funds and prices are significant difficulties faced in the progression.

According to research from the China Index Academy, the ‘bottleneck’ issues encountered in revitalizing idle land stocks include: the recovery price of the original land, where companies and the government struggle to reach consensus; companies show low willingness to participate if reclaimed at current market prices; numerous regulations restrict land type adjustments, which involve additional land payment obligations; local governments' enthusiasm for revitalizing and returning idle land is insufficient, reluctant to incur new debt for land repurchase; and most local governments are unwilling to accept inter-district land exchanges due to differing fiscal entities, making the coordination of interests between different districts challenging.

In addition, some land exchange and adjustment projects will involve re-segmenting the red lines and returning land by splitting parcels, which requires consulting the opinions of existing property rights holders in the sold parts of the community. However, currently, many cities do not have operational precedents, and local governments are not very enthusiastic about redefining red lines and subdividing land parcels.

In fact, relevant departments have already issued guidance on these matters that are being implemented.

At the press conference in October, the Ministry of Finance clarified that local governments are allowed to use special bonds to acquire existing commercial housing and land reserves, thereby expanding the sources of acquisition funds. On November 11, the Ministry of Natural Resources issued a notice on the use of local government special bond funds to recover the acquisition of existing idle land, and the details for acquiring idle land with special bonds have been finalized.

Regarding the price issue, the Ministry of Natural Resources stated in the aforementioned notice in November that land reserve institutions should entrust registered land valuation agencies to conduct market price assessments on the planned recovery land parcels, with the base price set lower than the enterprise land cost.

In the aforementioned notice, the Ministry of Natural Resources mentioned that using government special bond funds to recover existing idle land involves multiple departments and poses significant challenges to interest coordination. Natural resource authorities at all levels should strengthen communication and coordination with relevant departments such as development and reform, finance, judicial, and tax departments to form a collaborative effort. At the same time, it is important to strictly adhere to land policy red lines and properly manage land rights and obligations, ensuring the legitimate rights of land users and mortgagees, while preventing corruption risks and moral hazards.

Industry insiders point out that for local governments, existing idle land that can generate incremental value and achieve financial balance after recovery is likely the current focus of local government acquisitions.

"In the current market environment, clarifying what types of land can generate incremental value and how to implement incremental plans has become the key to breaking the deadlock. In terms of implementation pathways, real estate companies have the best understanding of their own parcels and can propose plans for these parcels. Local governing departments will review them for inclusion in the reserve based on demand and investment increments, and further apply for special bonds in conjunction with other departments. If relevant parties clearly express their demands, the flow will be streamlined, which may be more conducive to improving acquisition efficiency," said an analyst from the China Index Academy.

In this regard, industry insiders believe that this year, policies related to acquisition and storage are continually deepening and improving, with multiple departments introducing a package of measures to revitalize existing stock, aimed at supporting real estate destocking.

Analysts at the EasyHome Research Institute stated that significant changes in the funding situation of real estate companies are an important reason for the intervention of special bonds. During the market downturn, real estate companies' sales funds deteriorated, investment curves shrank, and asset monetization capabilities declined, which led to various problems. The special bond tool for acquiring and storing existing land was born, continuously enhancing the government's ability to inject funds, and playing a positive role in using fiscal tools to resolve existing land projects and accelerate the flow and smoothness of funds at the land end.

Several analysts believe that although there are some difficulties in advancing, it is expected that relevant measures will continue to be improved regarding the issues that arise during implementation.

"We believe that the acquisition of special bonds will improve the supply-demand relationship in the land market, enhance liquidity for companies and local governments, and promote a stabilization in the market," stated an analyst from Huafu Securities.

"In terms of funding, special borrowings from the central bank and special bonds from the fiscal system are expected to be the main sources of funds for this round of acquisition. However, during the implementation of the acquisition, it still faces constraints due to low project return levels. If more effective measures for the acquisition are introduced later, such as extending the assessment period for acquisition funds, expanding the scope of acquisition projects, and providing interest subsidies for supporting financing from the government, the progress of the acquisition may accelerate, easing the current cash flow pressures faced by real estate companies, optimizing the market supply-demand structure, and promoting a stabilization in the real estate sector," stated an analyst from Guolian Securities.