BEIJING (BLOOMBERG) - China is considering a plan to seize undeveloped land from distressed real estate companies, using it to help finance the completion of stalled housing projects that have sparked mortgage boycotts across the country, according to people familiar with the matter.
The proposal, which is still under discussion and could change, would take advantage of Chinese laws allowing local governments to wrest back control of land sold to real estate companies if it remains undeveloped after two years, without compensation.
That would give authorities more leeway to direct funds toward uncompleted homes, potentially to the detriment of creditors who would lose claims on some of the developers' most valuable assets.
While officials would have bandwidth to adjust the process to suit local conditions, a typical scenario would involve seizing land from a distressed developer and giving it to a healthier rival, which would in turn provide funding to complete the distressed developer's stalled projects, the people said.
The government could also rezone the seized land in some cases to increase its value, the people added, asking not to be named discussing private information.
The proposal is one of several measures under consideration as President Xi Jinping's government tries to prevent turmoil in the housing market from fuelling social unrest and derailing the broader economy.
The focus on completing projects is the latest sign that policy makers are prioritising homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group.
The Ministry of Housing and Urban-Rural Development is discussing the proposal with other regulators and it's unclear whether it will get a green light from senior Chinese leaders.
The housing ministry and the ministry of natural resources didn't immediately respond to faxed requests for comment.
China's top 100 developers owned land parcels valued at 42.5 trillion yuan (S$8.7 trillion) at the end of last year, according to China Real Estate Information Corp.
Many of them borrowed heavily to buy the land, in hopes that prices would continue rising.
That bet is now souring after a multi-year government clampdown on real estate leverage that has weighed on home prices, land values and new residential property sales.
The result is that many distressed builders are sitting on land they've been unable or unwilling to develop.
Just 37 per cent of land parcels auctioned in the first batch of centralised land-bidding last year have started work as of March-end, according to a recent Caixin report.
About 16 per cent of the second batch were being developed, the newspaper said.