China Mulls Large-Scale Government Purchases to Alleviate Property Glut

[Social Media]

 

China is considering an ambitious plan to address its struggling property market by having local governments purchase millions of unsold homes. The proposal, currently under review by the State Council, involves state-owned enterprises buying distressed properties at discounted rates with loans provided by state banks. These homes would then be converted into affordable housing, marking a significant effort to mitigate the housing crisis.

 

The State Council is soliciting feedback on the proposal from various provinces and government entities. While China has previously experimented with pilot programs to tackle excess housing inventory, this plan would be on a much larger scale. Local state-owned enterprises would assist in purchasing unsold homes from struggling developers at discounted prices. State banks would provide loans to facilitate these transactions.

 

Officials are still debating the feasibility and specifics of the plan. If approved, it could take several months to be finalized. The Ministry of Housing has not yet commented on the proposal. The plan reflects the government's commitment to addressing the housing market's challenges, which have been exacerbated by a significant drop in home sales and a surge in unsold inventory. Investors are keenly awaiting details of the government's strategy following the Politburo's recent pledge to explore new approaches to tackle the real estate crisis. The proposal has already led to a rally in Chinese property stocks.

 

China has previously attempted smaller-scale programs to address housing inventory, but with limited success. Programs initiated in 2023 saw only a fraction of the allocated funds utilized, indicating caution among banks and local authorities. Despite recent measures to stimulate housing demand, Bloomberg Economics suggests that stabilizing the property sector will require closing the gap between supply and demand. The significant inventory backlog presents a formidable challenge, requiring substantial financial resources.

 

The new plan to involve local governments in reducing the housing glut could exacerbate their already high debt levels. Additionally, banks may face pressure on their balance sheets due to rising bad loans and narrowing margins. China's proposed initiative to have local governments purchase unsold homes represents a bold attempt to address the housing crisis. However, challenges remain, including the need to balance debt levels and financial risks. The success of this plan will depend on effective implementation and coordination between various stakeholders.

 

Credit: Bloomberg 2024-05-16

 

Get our Daily Newsletter - Click HERE to subscribe

[Srikcir]

10 hours ago, Social Media said:

China's proposed initiative to have local governments purchase unsold homes represents a bold attempt to address the housing crisis. However, challenges remain, including the need to balance debt levels and financial risks.

Remember that all "local governments" in China are one- party unitary governments, the CCP. As to property developers such as state-backed China Vanke there will be more debt stress on the Chinese financial institutions, not less as a near term solution. Case in point was the recent defaults by China Evergrande Group and Country Gardens. 

Also remember just a few years ago, China began tearing down built, unfinished and unsold high-rise buildings that could have housed 75 million people.

The current plan is indeed bold, for it will unnecessarily fail with further economic stress in the form of higher national debt facing a declining population and weakened labor supply.

 

 

[PETERTHEEATER]

But will the purchases also include known 'tofu dreg' properties?

Perhaps China's leader Number Eleven will take on only quality housing. Is location a prime consideration?

[Tug]

Why did they build so much in the first place?seems kinda dumb to me and I know the Chinese aren’t dumb far from it 

[herfiehandbag]

2 hours ago, Tug said:

Why did they build so much in the first place?seems kinda dumb to me and I know the Chinese aren’t dumb far from it 

Greed.

[Gweiloman]

These homes would then be converted into affordable housing

 

Good that the government is continually looking after the welfare of its citizens, even though homelessness is practically non-existent.

 

Countries with large numbers of homeless would do well to learn some lessons.