Central Institute of Finger Studies: Using special bonds to purchase existing land means that more low-cost incremental funds will enter the market.

In the notification issued by the Ministry of Natural Resources on November 11th regarding the use of local government special bonds to repurchase idle land, the China Index Research Institute stated that the implementation of the notification signifies that more low-cost incremental funds will enter the market. For real estate developers, they should seize the opportunity to sell existing land to ease financial pressure or improve land reserve structure. For local governments, using special bonds to repurchase existing land can enhance their financial liquidity, alleviate financial pressure, support local economic development, and ensure livelihoods. For the market, repurchasing idle land will help improve market supply and demand relationships, which is a key measure to stabilize the real estate market, showing that utilizing special bonds to repurchase idle land can achieve multiple benefits. In the current market environment, reclaiming and repurchasing urban land with development potential can generate incremental value when re-entering the market, which is beneficial for meeting new market demands, increasing local land sales revenue, and promoting local investment. It is recommended to expedite the repurchase process in cities that can create more incremental value. Finally, detailed regulations on special bonds still need to be further clarified by the Ministry of Finance and other relevant departments. If policies are implemented swiftly, they may continue to restore market expectations and stabilize the real estate market. Objectives and purposes: Reduce the scale of idle land in the market, improve land supply and demand relationships, enhance the liquidity of local governments and enterprises, and stabilize the real estate market. The notification clearly states that "using special bond funds to repurchase idle land is a key measure to reduce the scale of idle land in the market, improve land supply and demand relationships, enhance the liquidity of local governments and enterprises, and stabilize the real estate market". It encourages localities to use special bond funds to repurchase land, rejuvenate existing land. This is beneficial for local governments to enhance land resource utilization efficiency, reduce the scale of idle real estate land in the market, and improve land supply and demand relationships. It can increase enterprise liquidity, facilitate real estate companies to concentrate funds on house completion, improve market expectations, and also aid in enhancing enterprise land reserves. Moreover, it can provide new products to meet market needs, further improving supply and demand relationships, all of which contribute to stabilizing the real estate market. Furthermore, reclaiming and storing land to create "net land" and "superior land" can help improve the environment, meet residential needs, free up space to support the development of the real economy, and promote effective investments. Acquirer: Specific implementation of land repurchase by land reserve institutions included in the list management The notification clearly states that "the use of special bond funds for land repurchase should be specifically implemented by land reserve institutions included in the list management." Land reserve institutions are mainly land reserve centers or land consolidation centers in various regions or provinces. According to the Ministry of Natural Resources' publication of the "Land Reserve Institution List (2020 Edition)", there are around 2500 land reserve institutions nationwide. Acquisition targets: Prioritize repurchasing residential and commercial land that businesses are unable or unwilling to continue developing, as well as land already supplied but not yet developed. In June 2024, the Ministry of Natural Resources and the National Development and Reform Commission issued the "Notice on the Implementation of Several Policy Measures for Properly Handling Idle Land" (Natural Capital Development [2024] No. 104), specifying the disposal targets for real estate land supplied before March 31, 2024, but not yet started or completed. This notification emphasizes further promoting the implementation of document No. 104, clarifying the types of idle land to be repurchased with special bonds, mainly including several types: Firstly, prioritize repurchasing residential and commercial land that businesses are unable or unwilling to continue developing, as well as land already supplied but not yet developed; secondly, in other types of land, land entering judicial or bankruptcy auction processes; thirdly, land that needs to be reclaimed due to inefficient use or infrastructure development; fourthly, parts of land that have started construction but remain undeveloped. It can be seen that the types of land include various types of land, prioritizing the repurchase of residential and commercial land that meets the conditions. Lawful bidding land is also included. This includes undeveloped land that was not started and partially developed land. Prioritizing the repurchase of residential and commercial land is advantageous as it eases the financial pressure on real estate development companies, provides liquidity for companies, improves market expectations, and enables companies to better utilize funds for house completion, thereby restoring market confidence. Additionally, it directly improves land supply and demand relationships, playing a significant role in stabilizing the real estate market. In May 2024, the Ministry of Natural Resources issued the "Land Reserve Management Measures" (draft for comments), making it clear that a national land asset management information system should be established (an upgrade of the original land reserve monitoring system) to manage reserved land information. This notification emphasizes that land reserve parcels in projects corresponding to special bonds must have a reserve parcel identification code in the national land asset management information system. This ensures that the reserved land has been properly recorded, aiding in the regulation of repurchasing idle land. Purchase price: The land valuation price is compared with the company's land cost to determine the base land price at the lowest level. The notification specifies that "Land Reserve institutions will commission accredited land valuation agencies to conduct land market price evaluations for the land parcels intended for repurchase. The base land price is determined based on the evaluation price compared to the company's land cost (including land transaction price + interest expense)." Furthermore, it states that "the city or county coordinating mechanism for disposing idle land or land transfer coordination decision-making bodies will collectively determine the extent of price reduction based on market conditions, contract performance, etc." In other words, the base land price is the lowest price between the evaluation price and the company's land cost (including land transaction price + interest expense). The final purchase price is then further reduced based on the base price. Since the second half of 2021, the real estate market has undergone a significant adjustment, with fluctuations in house prices leading to assessed land prices being lower than what companies initially paid for the land, especially during periods of high market activity. It is worth noting that land evaluated prices are currently lower than what companies paid for the land, especially during peak market times. This initiative aims to expedite the implementation of Document No. 104 and specify the types of idle land to repurchase with special bonds, mainly focusing on several categories. To conclude, this notification is aimed at encouraging the efficient use of land resources, enhancing liquidity for real estate companies and local governments, maximizing land utilization, and stabilizing the real estate market.The starting price is generally determined based on the assessed value combined with factors such as current market conditions. The cost of storage and procurement is an important factor, and the issuance of local special bonds also relies on land value. Therefore, the starting price of land when it is sold or the price of land acquisition in this transaction is an important reference. Land that was sold at a low price in the past is expected to achieve more effective transformation in this round of land acquisition.After the land is reclaimed, the "direction": in principle, it will no longer be supplied for real estate development in the same year. The "notification" specifies that "reclaimed and purchased land shall not be supplied for real estate development in the same year in principle. If there is a demand, the scale should be strictly controlled, the conditions optimized for implementation of supply, and the supply area should not exceed 50% of the total area of reclaimed and purchased real estate land in the same year," which is also a specific manifestation of implementing "strict control of increment". It requires that reclaimed and purchased land should not be supplied for real estate development in the same year as a principle. After the land is reclaimed, it will significantly reduce the land stock, further improve the supply and demand relationship in the real estate market, promote market expectations restoration. And if it is necessary to supply for real estate development projects, it needs to implement "five types of control" and limit the supply area to not exceed 50% of the total area of reclaimed land in the same year. This will impose significant constraints on cities with long inventory digestion cycles. In this situation, land that can re-enter the market or parcels that can generate more incremental value after adjustment may satisfy new market demands, but also contribute to increasing local land transfer income. The "five types of control" refer to the control objectives of residential land supply being "five types" (significantly increased, increased, stable, slightly reduced, reduced to suspended), among which, for inventory digestion periods exceeding 36 months, land supply should be stopped; for those within 36~18 months, land supply should be slightly reduced; for those within 18~12 months, land supply should be maintained at a stable level; for those within 12~6 months, land supply should be increased; and for those under 6 months, land supply should be significantly increased and accelerated. The special bond quota has not been determined yet, awaiting further clarification of policies. The Ministry of Natural Resources issued the "notification" to quickly implement the policy of reclaiming and purchasing idle land stock. This time, it is more about clarifying the rules for using special bond funds to reclaim and purchase land stocks. The "notification" also points out that "special bond quotas, usage, management, and other requirements shall be implemented in accordance with relevant regulations." The specific usage methods of special bonds still require further policy implementation by the Ministry of Finance.