SOEs in real estate may be halved

A government think tank said Sunday the State-owned Assets Supervision and Administration Commission (SASAC) may cut in half the number of State-owned enterprises (SOEs) under its authority that are allowed to invest in real estate.

"The government is considering halving the number of SOEs under the direct supervision of the SASAC who owned businesses related to real estate, " Li Baomin, director of the research center of SASAC, told a financial forum in Shanghai, adding that the investments of such SOEs would be restricted.

Li said 51 SOEs under the SASAC are investing in domestic real estate.

"We are considering setting up an evaluation system requiring that 80-90 percent of the companies' tax revenue must be from their major businesses, and no more than 10 percent from real estate," Li said.

The China Times reported that unidentified sources said 96 SOEs under the SASAC are involved in real estate, with 16 firms primarily focusing on the sector, including Poly, Sino- Ocean, and China Resources. The other 80 firms with primary businesses in other sectors nevertheless are involved in real estate, the paper said.

Over the weekend, Huang Shu, deputy director of the SASAC, warned at a conference in Beijing that companies must enter the real estate market cautiously to avoid financial risks.

Analyst said SOEs' entering the real estate market has pushed land and home prices too high.

"The SOEs that have strong capital strength compete to buy land without consider-ing the cost, which made land prices soar too high," said Yin Bocheng, a Fudan University professor, adding that it was necessary for the government to control their investment to avoid financial risks as the real estate bubble could grow.

Last June, for example, Franshion Properties (China) bought the Guangqumen number 15 land plot in Beijing for a record total price of 4.06 billion yuan ($594.66 million), paying 14,500 yuan ($2,123.80) per square meter. Franshion is the flagship real estate developer of Sinochem Corporation, a SOE that is China's biggest integrated agricultural company with fertilizers, pesticides and seed products.

Among the top 10 highest priced land purchases in major cities in the first half of last year, 60 percent involved SOEs, the China Times reported.

Tan Xiaomei, local director of Jones Lang LaSalle, a real estate consultancy, said there was no doubt that the real estate market had always been the most profitable in China, and SOEs would prefer it to others.

"But if the SOEs all throw most of their money into the real estate market rather than their major businesses, which sometimes has a lower return rate, the Chinese economic system as a whole will be impacted negatively," Tan added.