In a middle-tier city, where property development has seen both boom and bust, the story of Liu Zhuo, a private real estate company head, mirrors many others navigating through the turbulent waters of the Chinese real estate marketLiu's company, emblematic of a broader trend, has faced severe operational challenges due to a looming crisis in the real estate sector, specifically concerning developments that have stalled and unsold properties—issues that have left him grappling with a significant amount of idle assets.

The core of Liu's work revolves around revitalizing these dormant assets, a task that has become increasingly pressing in light of national economic policies encouraging local governments to issue special bonds aimed at the acquisition and storage of idle landOn November 7, 2024, a communication from the central government reiterated the option for localities to engage in land accumulation, using dedicated bonds to finance purchases of unused land—an announcement Liu had keenly awaited.

During this announcement, Liu was actively negotiating with local government officials regarding the buy-back of a poorly managed real estate project

Advertisements

He seized the opportunity to assess whether the authorities were interested in acquiring some of the idle land under his company's managementInitial feedback was cautiously optimistic, with indications that talks could proceed.

This opportunity, however, was not entirely newThe practice of issuing special purpose bonds for land acquisition had been in the works since 2015, when the Ministry of Finance piloted this strategy for the purpose of land storage and preliminary developmentIt mandated that the revenue generated from the later sale of the accumulated land would be the source for servicing the debts incurred through these bondsGiven the ubiquitous presence of idle land among local governments, this policy has become a potential lifeline for distressed developers like Liu.

Come December 2024, and negotiations took a turn for the worseThe conditions proposed by the local government were not only stringent but also presented valuations that Liu perceived to be unreasonably low

Advertisements

After a brief and unsatisfying negotiation, Liu realized that maneuvering through the intricacies of special bond issuance for land acquisition would be fraught with challenges he'd not anticipated.

For instance, Wang Fei, who heads the land reserve center in Liu’s city, articulated the complexities surrounding the acquisition of idle land: the current dullness in the land market places pressure on officials to not only consider which lands to collect but also how to manage or sell them afterward without merely piling unnecessary debt onto local authoritiesThe ultimate goal should be the effective digestion of land; otherwise, it would simply add to the financial burden without tangible benefits.

Wang's land reserve center commenced publicizing a call for submissions for the storage of idle lands following the directive, aiming to gauge the quantity of businesses willing to relinquish their unused parcels and to gather feedback for the implementation details of the bond issuance

Advertisements

The requirements for land submissions were stringent—only properties that were either stalled, failed to sell at auction multiple times, or low-efficiency lands earmarked for recovery would qualify for inclusion.

As part of the process, Liu was particularly concerned with the conditions imposed on any prospective land dealsFor one, the lands had to be entirely free of pledges or mortgages—a tall order given that many developers, including Liu's own company, typically relied on leveraging these assets for loansWith the existing situation of financial instability, especially for private developers like Liu, raising the necessary capital to clear these encumbrances became a nearly impossible feat.

Moreover, it became evident to Liu that for the special bond initiative to effectively benefit developers facing financial distress, complementary financial support systems would need to be established—something the current landscape lacked

• Japan's Cautious Stance on U.S. Rate Cuts
• UK GDP Grows Only 0.1% in November
• The Global Wave of Interest Rate Cuts
• Anticipating the Q4 Earnings Season for U.S. Stocks
• The Great Global Collapse: Reasons Uncovered!

Additionally, the land assessment had to adhere to market values, which posed another hurdleThe land reserve center typically assessed lands at current market rates, which then saw discounts applied for storage prices, often leading to offers at around 70% of the assessed valueThis naturally sent developers into a spiral of frustration, as the offered prices often fell short of covering existing financial obligations tied to those lands.

As the city pushed ahead with these special bonds targeted at idle land acquisition, it was noted that returned lands would not primarily serve for residential developmentThis stipulation was critical, as Zhang explained, emphasizing that once acquired, these lands were foreseen to be used for infrastructure or other public service projects rather than becoming commodities for profit-driven housing developmentsSuch a standpoint underscores a shift in governance ideologies, placing social needs over market demands.

The growing trend of using special bonds for land acquisition became evident in various cities, with feedback suggesting that several localities had begun to embrace financing pathways to tackle the problem of idle land

In Wuhan, authorities announced their intention to issue $26.3 billion in special bonds to secure key parcels, projecting a potential return of $500 billion from land sales post-reinstitution—that is a considerable gain juxtaposed against an outlay for acquisition.

As some developers successfully reacquired land lost to state control, their stories offered glimpses into this evolving landscapeFor example, in December 2024, the prominent Vanke Group secured residential land originally under their ownership at a base price as part of the city’s larger effort to revitalize underutilized propertiesHowever, complication remained, with expectations that these lands remained undeveloped for a myriad of reasons from financial incapacity to market sluggishnessThe ultimate irony lay in how easily these pieces of land cycled back to former owners, further fueling a conversation about the effectiveness of the reclamation strategy.

Drawing comparisons, Wang elucidated the disparities in land reclamation efforts between major urban centers and smaller cities