In Germany the administrative regulation detailing the application of the passport law, in German here, states:
1.4.2 Pass bleibt Eigentum der Bundesrepublik Deutschland
Der Pass bleibt auch nach Aushändigung an die antragstellende Person Eigentum der Bundesrepublik Deutschland. Daraus folgt nach allgemein anerkannten völkerrechtlichen Grundsätzen, dass andere Staaten über Pässe der Bundesrepublik Deutschland nicht verfügungsberechtigt sind. Dies gilt auch in umgekehrter Weise hinsichtlich der Nationalpässe anderer Staaten.
("The passport stays property of the Federal Republic of Germany even after being handed out. Consequently, according to the generally accepted principles of international law, other nations have no power of disposal over passports of the Federal Republic of Germany. This applies in turn equally to passports of other nations.")
I think this is the main rationale: A passport is of central importance to the welfare of its holder. In essence, it links an individual to their government which in turn is entitled and obliged to render support abroad. This link and authorization is protected by the authority of the German government by making the government, not the holder, the owner.
(Other reasons suggested, such as the right to revoke it or restrict its use, don't seem compelling because government ownership is not a requirement for restrictions or revocations.)