How the state is propping up China’s housing market

Despite the air of gloom hanging over China’s property market, work is well under way at a construction site in the north-west of Beijing. Yellow and green cranes nestle among the scaffolding, while lines of crushed limestone trail across the upturned earth.

Backed by private developer Longfor, projects like this have helped power the world’s second-largest economy for three decades. But nowadays such developments are rarely in private sector hands.

“Longfor is basically the only private enterprise now [in Beijing],” says a salesperson at a nearby showroom. “The main land acquisitions are from state-owned companies,” she adds. “They have [the] money”.

Three decades after China liberalised its property market and ushered in a historic era of urbanisation, the state is back in force. In Beijing, an FT analysis of the purchases of 440 plots over eight years shows that government-backed developers have acquired more than their private counterparts in each of the last three years. Last year, the number of privately owned plots fell to its lowest level since 2018. Outside the capital, a similar pattern appears to be playing out.

Potentially a stabilising factor in a struggling market, the role of state-owned developers raises the question of how China’s property market will change, as a debt binge and the wreckage it left behind gives way to a new era of tighter government control.

China’s National Bureau of Statistics stopped reporting data on developers’ overall land purchases in early 2023, more than a year after the default of China Evergrande fuelled a liquidity crisis in the sector.

Private developers have not entirely disappeared, and state-owned and -linked companies have always been a part of the Chinese property system. But estimates from analysts imply that, in a still-struggling market, they are taking on a growing role.

“This is a structural change,” says Zerlina Zeng, head of Asia Credit Strategy at research firm CreditSights. “After Covid [post-2023] this is getting more and more obvious”.

Zeng’s team closely follows six developers, five of which are state-owned, and estimates that well over four-fifths of nationwide land sales last year were state-driven.

A crucial anchor of both the economy and the government’s fiscal model, the land market was one of the first metrics to flash red as China’s property boom began to reverse four years ago. Land auctions provide revenues for local governments, and the construction industry employs millions of workers.

In the past, developers quickly recycled funds raised from new housing sales to snap up more plots. But government revenues from land sales across the country have almost halved since 2021, and China’s first decline in overall property construction by floor area since 1997, which began in 2022, is accelerating.

New apartments — where prices have fallen for much of the past two years — are now also largely sold by state-owned developers. In a report highlighting early evidence of that shift in 2023, consultancy Capital Economics said a state-led housing sector “should be less prone to debt-fuelled exuberance” but “may be more prone to wasteful, misallocated investment”.

Like recent mortgage cuts and proposed government repurchases of idle land, the dominance of state-owned developers is interwoven with the government’s efforts to restore confidence in housing. But it also highlights the deep damage done to China’s property model. Even the most financially solid state players are mainly active in wealthy cities, pointing to a lingering challenge elsewhere.

An FT analysis of residential land auctions from the Beijing Municipal Commission of Planning and Natural Resources shows that private-sector developers were more active than state-backed and state-owned firms in 2020, but have since fallen back. Winning companies were analysed using Orbis, a global corporate database, and categorised according to their ownership status.

“For the tier 1 cities like Beijing, and other wealthy cities, the trend has been more pronounced as the state-owned developers seize more of the land parcels,” says Jeff Zhang, an analyst at financial services company Morningstar, who suggests there are now around 20-30 such cities across China. “Outside of those, we’re not that optimistic we will see any recovery of land transactions”.

A changing market

Those tier-one cities, which include Beijing, Shanghai, Shenzhen and Guangzhou, have remained relatively resilient to the confidence concerns that have characterised the property slowdown nationwide. Home prices here have fallen, but remain at elevated levels on an international scale — let alone a domestic one — meaning new projects still fetch high prices and the prospect of profits for anyone able to finance them. Increasingly, this means developers with ties to the state.

Close to an area known as the Fragrant Hills in the north-west of Beijing, on land that was home to now-demolished shanty towns, two luxury developments reflect this new reality. One 440-apartment site is a collaboration between Beijing Urban Construction Group and Yuexiu, a state-owned developer from the southern province of Guangdong, roughly 2,000km away.

“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”.

As evidenced by the FT’s visits to multiple state-backed sites in the capital, the apartments on offer largely reflect the still-expensive state of the city’s market and show few immediate signs of any difference from private developments. Their showrooms are often finished with fine details, including scrolls of calligraphy and a gaming room with an elevated screen running the breadth of the wall. Several drew heavily on references to China’s ancient past as part of their commercial branding, or included central gardens evocative of the same theme.

There are “more and more good [quality] houses”, says a sales rep at one of the Fragrant Hills sites. But nationwide, there are also signs that there are too many of them. Goldman Sachs estimates there is Rmb30tn of unsold housing inventory, including land and apartments, in China.

“It’s a lot easier for the government to control the supply,” says Zeng, adding that the “ideal scenario” would be to do so through state-owned developers. “There’s not much they can do on demand.”

Despite repeated cuts to mortgage rates, restoring demand has so far proved a challenge for policymakers. Even in wealthy Beijing, there is concern about consumer confidence. According to the Yuexiu sales rep in the Fragrant Hills, 2024 was “not as good” as 2023.

At the One Sino Residence site in Fengtai district to the city’s south, the mood is also uncertain. The project is being run by China Overseas Land & Investment, a state-owned enterprise that was the biggest buyer of land in both the Beijing area and China last year, according to Morningstar.

“Now [the market] is basically state-owned enterprises . . . customers will not have too many problems with delivery,” says a rep, in reference to the widely-discussed risks of private developers failing to complete projects.

He receives 30 to 40 prospective buyers on weekends. But such customers, he adds, are in a “wait-and-see mode” as they look for further policy announcements that might make a purchase more attractive.

Beyond Beijing

Analysts of China’s property sector emphasise the differences between Beijing and the rest of the country. One economist estimates that, in contrast to the capital, the vast majority of nationwide land sales are now made by local government financing vehicles (LGFVs) rather than developers.

As the vehicles are owned by the local governments in question, the sales “are mainly to stabilise local land markets, rather than to start new housing projects”, the person added. “Very few private developers are buying land”.

A policy push launched late last year, aimed at encouraging local and regional governments to buy up idle land from developers, points to the depth of the issues. “It is unclear what these cities plan to do with the land they are acquiring,” wrote analysts at rating agency Moody’s in a report this month. But the move “is in line with other recent policies aimed at giving the state a large role in the land and real estate markets”.

According to FT analysis, after several years of increases, land sales declined in Beijing in 2024. In poorer cities and regions, where data is often less accessible and economic activity is more varied, the picture is probably even bleaker.

“I think we know the situation is generally worse in many of the smaller cities and the pressure on land sales is more extreme, and therefore I would imagine the political pressure on state-owned enterprises to step in would probably be even more significant than in tier 1 cities like Beijing,” says Evans-Pritchard of Capital Economics.

But the deeper problem is “huge oversupply that has yet to work its way through the system”, he adds. There is “still a lot of construction work . . . but once they are finished they’re not going to be replaced with new projects”.

“I think there’s a temptation [to say] we’re past the worst,” he adds. “That may be true in some parts of the market . . . But for construction, which is far more important for GDP, that is not going to be the case in our view”.

Zeng at CreditSights suggests that China’s economy has become “more [of a] planned economy with more [of a] topdown stance”, and moreover that urbanisation has “significantly slowed down”. The government “just doesn’t need privately owned developers any more,” she says.

At the privately developed Longfor site, work is expected to complete in September this year. After that, construction workers will need to find a job elsewhere. “This is [the company’s] only project in Beijing,” the sales rep says. For the rest of 2025, she adds, projects are “not yet clear”.