March 19, 2010 / 4:46 AM / 10 years ago

China's order on SOEs to help key property developers

 * Non-property SOEs should withdraw from real estate sector
 * Move aimed at cooling, consolidating sector
 * China, Hong Kong property stocks rise
 By Lee Chyen Yee
 HONG KONG, March 19 (Reuters) - China's plans to ask some state firms whose core business is not property to exit the sector will likely benefit major developers by helping consolidate the industry, analysts said on Friday.
 China's latest order came days after a state military company and a financial conglomerate bought two pieces of land in Beijing at record-high prices, sparking market worries that the property market was getting out of hand. [ID:nTOE62F05D]
 On Friday, Shanghai and Hong Kong property indices .SSEP .HSNP inched up. A-shares of China Vanke (000002.SZ), the biggest Chinese residential developer by sales, rose as investors welcomed the order aimed at curbing land prices.
 "This is administrative interference to the business of the SOEs (state-owned enterprises)," said Lee Hing Yin, research director at Colliers International. "The measure is in response to high land prices."
 "This is one way to rein in property prices at their source by controlling land prices," Lee said.
 China's real estate sector is booming, enticing many firms to venture into the business to take advantage of high prices. In February, urban property prices rose 10.7 percent from a year earlier, the fastest pace in almost two years.
 Chinese leaders have tried verbal persuasion to try to curb prices over the past few months, with analysts expecting more specific measures to be announced if words had little impact.
 On Thursday, the State-owned Assets Supervision and Administration Commission said it would require 78 centrally administration SOEs whose core business was not in real estate to withdraw from the business, but did not state a timeframe.
  "If the government bans these companies from the real estate business, it will be beneficial to the existing players, especially the listed companies like China Overseas Land (0688.HK)," said Adrian Ngan, an analyst at CCB International Securities.
 "The impact will be positive because in the future, some of the players will be eliminated and that will mean less competition," Ngan said.
 Even though the move is seen as positive for existing developers, the boost in sales or earnings might be muted as property SOEs still make up the bulk of total property sales and assets among state firms.
 The commission said there were now 16 property SOEs with total assets of 561.6 billion yuan ($83 billion), representing 85 percent of SOEs' total property assets. Sales of SOEs dedicated to the real estate sector account for 86 percent of the total property sales of all government-owned firms.  ($ = 6.8 yuan)  (Additional reporting by Jun Ebias; Editing by Jonathan Hopfner)  (See for Reuters' global service for real estate professionals)     

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