CHINA is considering a proposal to have local governments across the country buy millions of unsold homes, sources familiar with the matter said, in what would be one of its most ambitious attempts yet to salvage the beleaguered property market.
The State Council is seeking feedback from several provinces and government entities on the preliminary plan, said the sources, asking not to be identified as discussing a private matter. While China has already experimented with several pilot programmes to clear excess housing inventory with the help of state funding, the latest plan would be much larger in scale.
Local state-owned enterprises would be asked to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks, according to two of the sources. Many of the properties would then be converted into affordable housing.
Officials are still debating details of the plan and its feasibility, the sources said, adding that it could take months to be finalised if China’s leaders decide to go ahead. The housing ministry did not respond to a request for comment.
If authorities do proceed, it would mark a new phase in the government’s closely watched campaign to address the biggest drag on the world’s second-largest economy. China’s home sales plummeted about 47 per cent in the first four months and unsold housing inventory is hovering at an eight-year high, exacerbating a meltdown that threatens to put about five million people at risk of unemployment or reduced incomes.
Investors have been awaiting details of the government’s next moves after the ruling Communist Party on Apr 30 vowed to explore new approaches to ease the real estate crisis. The Politburo, composed of China’s 24 most senior leaders, said the country was studying ways to “digest” the existing stockpile of homes.
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A gauge of Chinese property stocks has rallied about 14 per cent since then.
While Beijing has experimented in the past with state buying of unsold apartments, most smaller-scale initiatives have met with little success.
In early 2023, the People’s Bank of China made 100 billion yuan (S$19 billion) available to some financial institutions through a specialised lending facility. The money was meant to help eight cities on a trial basis buy unsold properties for use in local subsidised rental programmes.
The Economic Observer newspaper reported in January this year that cities including Qingdao and Fuzhou had started using those funds to buy apartments. Still, only two billion yuan was extended under the programme as at March, the central bank’s latest quarterly data showed, implying caution among banks and local authorities.
Since the Politburo meeting last month, several major cities including Hangzhou, the homebase to Alibaba Group Holding, scrapped all their remaining curbs on residential purchases to lift transactions.
Meanwhile, more than 50 Chinese cities rolled out “trade-in” programmes that offer residents incentives for selling their old homes and upgrading to new properties as part of efforts to boost housing demand. Among them, 11 local government or city-backed entities are conducting trials of buying housing inventory, according to a note from Tianfeng Securities this week.
Not enough
Even so, China’s property sector is unlikely to stabilise until the gap between housing supply and demand closes, according to Bloomberg Economics.
Unsold housing inventory climbed to 3.6 billion square feet last year, the highest since 2016, official data showed. It will cost at least seven trillion yuan, or 78 per cent of China’s budget deficit this year, for the government to absorb the inventory in 18 months, Tianfeng Securities estimated.
The new plan to enlist local governments to reduce the housing glut could further exacerbate their debt level, which has soared to 56 per cent of gross domestic product as at last year. Banks would also be under pressure as their balance sheets have already been eroded by rising bad loans and narrowing margins. BLOOMBERG
