“The reason why Yuexiu came to the north to acquire land is that many private developers have collapsed,” says a sales rep, adding that regulations limit land purchases by private developers. “The cost of acquiring land is relatively high for them,” she says, adding that the process is “government-guided”.
At the second state-backed Fragrant Hills site next door, where marketing materials make much of the area’s imperial connections, 50 of the 90 apartments have been sold already (in China, new properties are typically bought off-plan, before they are complete). They go for Rmb121,000 ($17,000) per square metre, similar to prices in Manhattan.
High prices like these were a major concern to policymakers in 2020 when they attempted to rein in the property market. That year, Beijing restricted borrowing by developers based on balance sheet metrics as part of a policy known as the “three red lines”.
Because many private developers had also borrowed heavily on international markets through Hong Kong, subsequent cashflow pressures showed up in their defaults on offshore bonds. As the cash crunch intensified, the mainland market became awash with severe construction delays and unfinished housing projects.
As a result, the role of private developers in selling new homes has declined markedly. In a report based on data from 50 developers, consultancy group Capital Economics estimated that privately owned developers had historically made up two-thirds of sales of new homes, but in 2023 their share had already fallen to below half. By the end of 2024, the proportion had dropped to around 30 per cent, partly because Evergrande stopped publishing sales data.
“The state is stepping in to fill some of the void left by private developers,” says Julian Evans-Pritchard, head of China economics at Capital Economics, adding that the “shift towards the state would be even more pronounced in the land market”.
“There are clearly financial stability advantages to having [state-owned enterprises] playing a greater role,” he added.
Homebuyers “automatically shift” to state-owned developers when others default, says Zhang, partly because they want assurance that projects will be completed. “This is just the cycle going forward,” he adds.
State control
Although China’s housing market was liberalised in the 1990s, it retains elements of the state control that characterised the previous era. Land is leased from the government, and private developers — which in many cases have close connections to local authorities — are sometimes partly owned by the state, which in the FT analysis is reflected by a third “mixed” category of developers.
State-backed companies also form part of an opaque government machine that can be directed towards any number of initiatives. In recent years, policymakers have unveiled a host of measures to support the housing market, including purchases of complete but unsold apartments that can eventually be used as social housing.
There are also widespread signs of local state banks and government authorities intervening to help finish the delayed projects of failed private developers. The troubled Shenzen-based mixed developer Vanke, the latest company to come under the spotlight, saw new management parachuted in from the state-owned Shenzhen Metro, its largest shareholder, last month. This has added to expectations that there will be more direct government support to avoid a default.
Other measures are more subtle. Zhang at Morningstar says the government previously limited land purchases to three per year in Beijing, but has lifted those restrictions, which he says means “the government is essentially encouraging developers to bid more and spend more in higher-tier cities”.