China’s new property titans

Why state firms have been smashing land auction records

People walk past behind a miniature model of the Jiyanghu Ecological Park at a showroom in Zhangjiagang

New kid on the block: Cinda has become a major buyer of property

If China’s economic growth is slowing down the impact doesn’t seem to have reached Christie’s auction house. Last month in Hong Kong a large, blue and white “dragon” jar from the Ming Dynasty was sold for HK$140 million ($18 million) after heavy bidding which started at HK$22 million. A five-carat green diamond also went under the hammer for HK$130 million, a world auction record.

Equally busy were some of the land auctions held in major Chinese cities. A commercial plot in Shenzhen, which measures 152,400 square metres in size, was sold for Rmb14 billion ($2.1 billion) last week. That is 1.6 times higher than the local government’s minimum asking price and counts as the highest amount ever paid for a single piece of land in China. The previous record was only set last month when a lot in Hangzhou was auctioned for Rmb12 billion.

According to the 21CN Business Herald, land auctions held across the country in May have already produced 69 so-called diwang (or ‘land kings’), which refers to land plots that have smashed previous sale records in comparable districts (either in absolute land price or per-square metre valuation).

The trend has shown no sign of abating. Early this month, a consortium led by PowerChina, a real estate company formed by several state energy firms, won the auction for a residential site in Shenzhen for Rmb8.3 billion, or Rmb57,000 for every buildable square metre.

A few days before that, Poly Real Estate, another state-owned enterprise (SOE), fended off 30 other bidders to win a residential plot of land in Shanghai’s Pudong for Rmb5.4 billion, or Rmb43,607 per square metre of gross floor area.

That was a Shanghai record but it lasted only for a week. Cinda Real Estate, the property development arm of China Cinda, the state firm which is supposed to focus on dealing with soured banking assets, also grabbed headlines for paying Rmb5.8 billion for a plot in suburban Shanghai, which ended up at a 300% premium over the auction reserve price. It also pushed the cost per square metre closer to Rmb48,000 – at a time when adjacent residential units have been going for Rmb46,000.

According to property agent Centaline, this year state firms have accounted for over half of the land purchases that exceed Rmb1.5 billion a plot.

So why are SOEs frantically snapping up land at such high prices? Industry insiders say there is more to it than meets the eye.

An investigative report published by the China Times in May 2014 has once again been widely forwarded. Its key finding: local governments artificially inflate the prices of land sold to developers, so nearby plots can fetch similar prices and boost the local economy. In return, real estate developers can get policy support, government subsidies or even kickbacks on the land cost.

“Some property developers are able to withstand these high land prices because close to 50% of the total value of the land will be returned to them. If the parcel of land is in an area that requires a lot of redevelopment, the local governments could ‘rebate’ up to 80% or more,” Lin Xiaohua at Shenzhen Golden Eagle, a property agent, told China Times.

As one insider put it: “It is all very superficial: it’s like moving something from the left hand to the right hand.” He says the local governments don’t receive that much from the record-breaking plot sales.

Some analysts believe that it is easiest for SOEs to collaborate with local governments to push up land prices in this way. “It seems that SOEs have become the guardian god of the Chinese property market,” Liu Xiaobo, a Shenzhen-based financial commentator wrote on

Meanwhile, few of the state-owned developers have been as aggressive as Cinda Real Estate. The SOE has been on a shopping spree since the second half of last year, outbidding rivals on six plots of land – mainly in Shanghai, Hangzhou and Shenzhen – and committing Rmb35 billion in total. That compares with the Shanghai-listed firm’s Rmb7 billion market capitalisation as of this week. It means Cinda Real Estate has got itself into a highly leveraged situation: said its net gearing ratio stood at 315% at he end of March. And that number is set to shoot higher as Cinda continues to plough capital into its property projects over the next few years.

In fact, the SOE remains a small player: its revenue is only a tiny fraction – 4% to be precise – of Vanke’s, the country’s largest developer. In the past, Cinda Real Estate has also outsourced the actual development of the projects to other more experienced developers.

So why is its parent firm so bullish? Investing in real estate appears to be one of the most attractive options in China at the moment. After all, “the property industry has good prospects and first-tier cities still have a lot of potential,” said

Cinda, which is backed by the Ministry of Finance, is also “flooded with cash,” according to, as it has been raising capital via a number of wealth management products.

The buying spree of the SOEs has renewed fears that inflation in land prices might push up home prices to unaffordable levels. Hu Shuli, the editor-in-chief of Caixin Weekly wrote this week that SOEs should be restrained from bidding on land, and meddling in the market.

“It’s especially important to act quickly in the face of China’s slowing economy, as local governments are now more than ever being tempted by the prospects of lucrative land sales,” she pointed out. also reported that the holding company for state assets, SASAC, has met with a number of SOEs to ask them to scale back on aggressive land purchases.

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