Market-oriented measures underlined for realty sector

The Chinese real estate market is now grappling with a complex set of challenges as it navigates an environment characterized by an oversupply of properties relative to demand. While the issue of unsold homes has received significant attention, effective utilization of idle land resources is of equal importance, analysts said.

Market-oriented measures such as refinancing instruments, special-purpose funds, tax incentives and land function adjustments should be leveraged to unlock the potential of plots that remain idle or underutilized and facilitate the rebalancing of the current property market — still a pivotal sector in the world's second-largest economy, they added.

The tone-setting third plenary session of the 20th Central Committee of the Communist Party of China, which concluded on Thursday, placed great emphasis on the effective implementation of measures to prevent and mitigate risks in the real estate sector.

China's real estate market, with its vast scale and extensive reach, exerts a systemic influence on the country's macroeconomic performance, said Han Wenxiu, executive deputy director of the office of the Central Committee for Financial and Economic Affairs, stressing the need to revitalize its stock of unsold housing units and underutilized land resources.

Initiatives such as promoting the clearance of unsold properties through cutting down payment ratios, scrapping minimum mortgage interest rates and controlling land supplies in high-inventory cities have already been pursued in response to shifting supply-demand dynamics in the sector.

In addition to these steps, effective utilization of idle land resources is considered a crucial element in the ongoing efforts to foster a more balanced and sustainable real estate market, which has often been reiterated by policymakers lately.

In early July, a special fund worth 30 billion yuan ($4.13 billion) approved by the State-owned Assets Supervision and Administration Commission of the State Council was put into place, aiming to revitalize land assets of State-owned enterprises.

Prior to the establishment of the fund, the Ministry of Natural Resources announced in mid-May its explicit support for local governments to reclaim unused land from enterprises unable to continue development at a reasonable price, and acquire land that has failed to sell in judicial and bankruptcy auctions.

The reclaimed and acquired land will be set aside for the construction of affordable housing and public amenities, the ministry said.

However, there are challenges in effectively resolving the issue of idle land, particularly when it comes to dealing with land under distressed property developers, said Chen Wenjing, director of research at the China Index Academy.

These developers often face financial difficulties, and their land holdings may be encumbered by multiple mortgage and debt obligations. Disposing of such land becomes a complex task due to the intricate web of mortgage and creditor relationships, Chen said.

Meanwhile, the market's anticipation of declining land prices creates a challenging environment for activating idle land. Even if land prices remain stable, a continued decline in property prices can dampen the enthusiasm of potential investors, said Li Yujia, chief researcher at the Guangdong Planning Institute's residential policy research center.

The availability of reasonably priced new land parcels may divert attention and resources away from acquiring existing idle plots, as potential investors may prioritize fresh opportunities over revitalizing existing ones, Li said.

Local governments play a crucial role in facilitating the development and utilization of idle land, which often requires substantial investment and resources, experts said, cautioning that current fiscal constraints limit their ability to proactively support property developers in unlocking the potential of idle land.

To address this issue, special bonds specifically designated for land reserves could be set up. By issuing these bonds, local governments can access additional funds that can be directed toward supporting property developers in revitalizing undeveloped plots, said Wang Xiaoqiang, chief analyst with the Zhuge Real Estate Data Research Center.

Tax and fee systems that promote the activation of idle construction land should be improved, Wang said, adding that State-owned enterprises will be encouraged to participate via various means, such as issuing bonds.

Market-driven approaches such as mergers and acquisitions and asset securitization could be explored, Wang said, adding that troubled projects — by engaging third-party institutions — can be restructured and transitioned into market-oriented development. This approach enables the injection of fresh resources, expertise and capital, which can help revive and optimize idle land resources.