China issues law to stem development

The Chinese government has prohibited real estate development by state-owned business for which real estate is not their core business. The move was welcomed by the private equity real estate sector.

China’s state-owned Assets Supervision and Administration Commission has taken measures to stem speculative real estate investment by state-owned enterprises by introducing a law prohibiting those for which real estate is not their core business from participating in the sector.

According to a report by the Financial Times, the government has listed 78 state-owned enterprises that are not allowed to invest in real estate. In addition, these companies have been asked to divest from their real estate holdings and must provide strategies for doing so by the middle of next month.

A further list of 16 state-owned companies for which real estate is their core business has also been produced. They have been allowed to continue trading in the sector.

The move is part of a wider plan by the government to curb unsustainably rising prices in the domestic real estate market, for which it holds state-owned businesses partly responsible. The firms in question have been able to obtain cheap financing enabling them to overbid on assets, something the government has labelled as speculative.

Included in the list of companies were China South Industries Group and China Ocean Shipping.

The news was welcomed by the private equity real estate sector. At the PERE Forum in Hong Kong in February, concerns were voiced over the rising dominance of domestic buyers in China over private equity backed investment houses who source their capital internationally. One delegate at the event who addressed the matter, Richard Price, chief executive for Asia at ING Real Estate Investment Management, welcomed the move by the government.

He told PERE today: “We view this as a positive move. It will not fundamentally change our strategy although it could, potentially, improve the competitive landscape for us by leading to fewer state backed land buyers with access to low cost government backed capital.”

He added: “This may also help temper the rise of land prices which would be a good thing for the long term development of the market.” ING REIM is currently in the market fundraising for its second China real estate opportunity fund, ING China opportunity Fund II, which it hopes to hold a first closing over the next two to three months.

According to the report, real estate prices in China rose 10.7 percent in February from last year after rising 9.5 percent in January.