Kerui: Recent land acquisition strategy and investment logic of real estate companies

Entering the second half of the year, corporate investment becomes more cautious, with private enterprises declining, state-owned enterprises strengthening, and urban investment providing support. This pattern has not changed. Even the active pace of investment by state-owned enterprises, which has been ongoing since centralized land supply, has slowed significantly, with a more focused, precise, and rational approach to land acquisition. The market has been slowly recovering, but the confidence in purchasing homes is gradually returning. How are the leading enterprises still acquiring land in this market? What are the characteristics of land acquisition by state-owned enterprises in the past two months? Are they resonating with the current market? 01 State-owned enterprises are still acquiring land but at a significantly slower pace, with only a few private enterprises such as Binjiang, Longhu, and Wei Xing continuing to acquire land. Since 2024, the land market and the real estate market have shown a relatively "independent" and "separated" trend. Unlike new and second-hand homes benefiting from policy support and showing some recovery, the land market has not shown any significant improvement. The transaction area and amount of commercial land in 300 cities nationwide in the first seven months of the year decreased by 21% and 37% respectively compared to the same period last year, reaching a new low in nearly five years. Except for a few cities where high-quality land parcels are in high demand, most land parcels either receive no bids or are sold at the reserve price. From the perspective of enterprises, the short-lived recovery in the real estate market has affected their investment decisions. The value of newly acquired land in the first seven months decreased by 38% compared to the same period last year. In terms of the overall pattern, state-owned enterprises are still leading but showing signs of fatigue. On the one hand, the percentage of land acquisition amount by state-owned enterprises in the Top 100 in recent years has been increasing, maintaining at above 60% since 2022; on the other hand, in the Top 20 in terms of land acquisition amount, state-owned enterprises account for almost half of the total, indicating that state-owned enterprises have been the biggest "winners" in the land market in the past three years. However, it is worth noting that since 2024, the pace of investment by state-owned enterprises has slowed down. Especially the state-owned enterprises that acquired more land in the past two years have seen a significant decline in their proportion of land acquisition amount in both the Top 100 and Top 20 lists. Leading enterprises such as China Resources, China Overseas Land, and China Merchants have experienced a year-on-year decline of over 60% in land acquisition amounts in the first seven months of the year. In contrast, private enterprises have almost disappeared from the land acquisition scene since the second round of centralized land supply in 2021. Their own financial difficulties, combined with the weak market sales, have made them lose the ability to invest. Only a few large-scale enterprises such as Binjiang, Longhu, and Wei Xing can participate frequently in land auctions and land acquisitions in their core regions. 02 Land acquisition in the past two months has focused on low-total price, low plot ratio land in key cities, and overall land acquisitions are relatively rational. Despite the shrinking investment strategies, the investment intentions and scale of state-owned enterprises have slightly rebounded in the past two months, with some parcels even transacting at high premium rates. Under the lack of momentum in the overall market recovery, these enterprises "desperately grabbing land" can be considered as a reference, as even high-quality land parcels are not completely safe in the current weak cycle. We analyzed the 30 land parcels acquired by the Top 10 real estate developers in land acquisition amounts from January to July in the past two months and found the following trends: First, third and fourth-tier cities are basically excluded from the investment strategies of enterprises. Third and fourth-tier cities are facing three major challenges: overdrawn demand, overleveraged real estate prices, and high inventory levels. Sales declines in these cities are much higher compared to first and second-tier cities. Therefore, leading real estate companies have avoided land acquisitions in third and fourth-tier cities since 2022. In the past two months, typical enterprises have continued to focus on first and second-tier cities, especially in key cities such as Beijing, Shanghai, Hangzhou, and Chengdu. In terms of land acquisition amount, first-tier cities account for 36%, while second-tier cities account for 61%. Second, land parcels with low total price and low plot ratio are favored. Among the land parcels acquired by typical enterprises, those with a total price of less than 1 billion yuan account for 47%, while those with total prices exceeding 3 billion yuan are only 8%. This indicates that high total prices in core cities pose significant risks for enterprises, leading to more cautious land acquisitions. For example, two high-total-price land parcels in Xiamen were transacted at the reserve price. Additionally, many cities have recently released low-density land parcels in prime locations to boost confidence in the land market, making them a target for leading enterprises. In the past two months, land parcels with a plot ratio below 2.2 accounted for over 40% of the land acquisitions by the Top 10 real estate developers. Third, although there are some land parcels transacted at high premium rates, the overall trend of land acquisition remains cautious and rational. The average premium rate for land acquisitions by these leading enterprises in the past two months is around 8%, indicating a more proactive approach compared to other companies. However, in specific cities such as Xiamen, Wuhan, and Xi'an, land was transacted at the reserve price. Even in Beijing, the premium rate for land acquisitions by the Top 10 enterprises in the past two months is less than 3%, with nearly 70% of the land parcels transacted at the reserve price. 03 Low density, good resources, and low prices are the recent characteristics of land acquisition, corresponding to the focus of enterprises on product, supply and demand, and land prices. Looking at specific land parcels, whether transacted at a high premium rate or the reserve price, they generally show three characteristics: low density, scarce resources, and price advantages. From the perspective of enterprise investment logic, these characteristics correspond to three other dimensions besides basic financial viability when choosing land parcels, including the future product offerings, the supply and demand dynamics in the region, and the overall profitability and land price levels. Firstly, both central policies and market feedback show that high-end luxury projects and premium products have higher sales resilience in the current market, ensuring higher sales security. The land parcels acquired by the Top 10 companies in the past two months have a plot ratio of 1.8 or below and are mostly located in core areas, indicating that there is not much overall sales pressure in the future. Secondly, many land parcels acquired by state-owned enterprises have objectively comparable land prices or profits. For example, the land parcel acquired by Urban Construction Group in Changping District, Beijing for 1.99 billion yuan has an actual construction price of 13,100 yuan per square meter, with a future presale guidance price of 39,000 yuan per square meter for period housing and slightly higher for existing housing at 41,000 yuan per square meter, with an overall land-to-housing ratio of no more than 0.4, showing an objective profit margin. Another example is the land parcel acquired by Poly Developments and Holdings Group for 700 million yuan in Liwan District, Guangzhou, with a construction price reaching a new low in the past five years at Gangyue Xincheng. Finally, from past experience, core and scarce locations are often guarantees for sales, especially in areas where supply does not meet demand. For example, the scarcity of land parcels in the core area of West Station in Lanzhou and the scarcity of improved plots in the main city are guarantees for sales, providing ample space for future project development. In summary, after various cities have introduced control policies, the market has reacted differently.Different from before, the policy effects have led to a more obvious differentiation in the land market: core land in cities such as Shanghai and Hangzhou is highly sought after, but land markets in cities like Suzhou and Hefei continue to be sluggish, mainly due to poor performance in the clearance of projects in core areas, which has had a significant impact on the confidence of real estate companies in land acquisition.From the perspective of enterprises, investment is still waiting for the signal of the real estate market to rebound, which will boost the growth of corporate investment confidence. In addition, high-quality plots with low density and excellent location in core cities are still very attractive to companies, and will lead to active bidding. This article is reprinted from the WeChat public account "Kelui Research Center"; Author: Xie Yangchun, Wu Jiaming; GMTEight Editor: Liu Xuan.