LGFV land grabs create inventory of idle land
Land purchases by local government financing vehicles (LGFVs) have resulted in a massive stock of undeveloped land.
Some context: Local governments rely on land sales as a key source of revenue. This revenue stream has been under pressure as private developers – facing financial distress – have reduced land acquisitions.
- In response, local governments have encouraged LGFVs to purchase land, to make up the revenue shortfall.
In 30 major cities monitored by China Real Estate Information Corp. – an independent data provider – LGFV purchases accounted for 46% of land plots sold between January 2021 and May 2024.
More context: LGFVs relied on commercial bank loans and bond sales to fund their land grabs.
- By directing LGFVs to make land purchases, local governments were effectively borrowing this money to bolster their depleting coffers.
The catch: LGFVs have neither the experience nor sufficient capital to develop properties. As a result, much of their land holdings sit idle.
- LGFVs have commenced construction on only 22% of plots they acquired since 2021.
- By comparison, central state-owned enterprises and private developers had begun work on 71% and 44% of their acquired plots, respectively.
Get smart: With little prospect of generating income, land purchases have merely escalated financial risks for LGFVs and their government hosts.
Get smarter: Reducing LGFVs’ massive and unproductive land stock will require local government buybacks or land transfers to more financially robust state-owned enterprises (SOEs).
- Either approach will require substantial support from the central government.