Chinese state-backed developers are starting to buy land at a premium again after the government eased limits on home prices to revive a slumping market that’s been a drag on the economy for more than four years.
The number of land parcels that sold for at least 20% above the asking price accounted for 37% of deals this year, according to a Bloomberg analysis of transactions worth at least 1 billion yuan ($184 million) tracked by China Index Academy. That compares with just 14% for all of last year and 4.6% in 2023.
Seven out of the 10 transactions this year involved state buyers, including China Resources Land, China Overseas Land & Investment, Poly Developments and Holdings Group and mixed-ownership firm Greentown China Holdings Ltd.
The renewed interest in land deals signals some state-backed developers are betting on an eventual rebound in the housing market, even as sales and prices continue to slide on weak consumer confidence. While not a full recovery, it’s the latest sign that China’s property market is stabilising.
Local provinces are facing increased financial pressure due to dwindling land sales in recent years. Government revenue from these transactions plummeted 16% last year, worsening 2.8 percentage points compared with the previous year.
In response, more cities are encouraging land purchases by easing terms, including relaxing limits on how much profit developers can make selling new homes. Many cities scrapped price guidance in the second half of last year to encourage such moves.
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“While the land market hasn’t shown a full turnaround, some cities are starting to see red-hot bidding over parcels,” said Xie Yangchun, an analyst at China Real Estate Information Corp. “That’s because stringent limits on home prices ended last year.”
To be sure, the number of land transactions worth more than 1 billion yuan is still below pre-downturn levels. Most of the land parcels sold are small, according to China Real Estate Information.
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The latest improvement follows pledges from the country’s top leaders, who vowed to stem the decline in the real estate market in late September. That’s prompted more developers to compete for quality land parcels, especially in economic hubs such as Shanghai and nearby Hangzhou.
Before China’s property crisis, the government sought to temper sky-high home prices by attaching strings to land sales, often limiting maximum selling prices before homes were even built.
In some cases, the guidance was specific. Changsha, the capital of central Hunan province, stipulated that developers’ profits shouldn’t exceed single-digits relative to the land cost.
In November 2024, Beijing stopped setting an upper limit for home prices when it auctioned a residential land parcel, the first time it’s done that in more than three years. State giant China Overseas Land & Investment splurged 11 billion yuan on it.
State-owned developers may continue to drive land sales as they lay the groundwork for reinvestment, according to Bloomberg Intelligence’s Andrew Chan and Daniel Fan.
In June last year, Shanghai eased land-buying rules by removing similar curbs. Soon after that, the city sold the country’s most expensive land plot by unit prices. The same is happening in the neighbouring city of Hangzhou.
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“Hangzhou’s decision to revise development guidelines on a plot of land to make terms more favorable may signal a willingness by local government to incentivise buying by developers,” said Chan and Fan.
Charts: Bloomberg
