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Fitch: CN Urban Villages Renewal May Benefit Large SOEs Long-term; Limited Effects on New Home Sales
Fitch Ratings noted that China's plan to revitalize urban villages in major cities is one of the latest initiatives to revitalize the economy, which could benefit large state-o...
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Fitch: CN Urban Villages Renewal May Benefit Large SOEs Long-term; Limited Effects on New Home Sales
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Fitch Ratings noted that China's plan to revitalize urban villages in major cities is one of the latest initiatives to revitalize the economy, which could benefit large state-owned real estate companies in the long term, especially those with experience in urban renewal projects and a higher likelihood of being involved in projects under the plan. However, given the program's focus on large cities, its impact on China's real estate investment and new home sales is likely to be limited.

The latest policy guidelines target rural land in mega and super-mega cities with urban populations of 5 million or more, which is different from previous rounds of urban renewal activities. By the end of 2021, there are 19 cities that meet these population criteria. In contrast, previous rounds of urban renewal activities have focused on urban land in 3rd-tier cities or below, which also have smaller populations.

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Fitch believed that the latest round of urban village redevelopment will gradually affect the relevant real estate companies. Subsequent plans released by the Shanghai and Guangzhou municipal governments suggest that this round of renovation could last at least a decade.

In addition, the program's focus on rural land in large cities may result in higher resettlement costs and longer duration than previous rounds. This is because buildings on rural land in urban areas are often not subject to government approval procedures, making the balance of interests between various stakeholders more complex. In previous rounds of urban renewal, most of the original buildings were demolished or rebuilt, but Fitch believed that this round is expected to take a softer approach, preserving a large portion of the existing buildings.

Fitch expected that the scale and pace of investment in the program will also depend on the ability of local governments and their respective financing platforms to secure new financing, which may be limited in cities with high levels of outstanding debt and weaker financial performance.

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