Chinese Government Buyout to Rescue Property Market?

Chinese Government Buyout to Rescue Property Market?

China’s ailing property market, a significant drag on the national economy, might see a radical intervention in the form of local governments purchasing millions of unsold homes. This unprecedented move follows calls from the Communist Party leadership to address the mounting housing inventory.

According to Bloomberg News, the State Council is currently gathering feedback from various provinces and government entities on this preliminary plan. The news triggered a temporary surge in China’s blue-chip CSI 300 real estate index, reflecting cautious optimism in the sector.

China’s property sector has been struggling for years, burdened by a crippling debt crisis among developers. Since 2022, various policy measures have failed to revitalize this crucial sector, which contributes roughly 20% to the GDP and significantly impacts consumer spending and confidence.

Banks remain hesitant to significantly increase lending to the troubled sector, fearing an increase in bad loans amidst continued weak sales figures. Home sales value for the top 100 developers in April plunged 45% year-on-year, highlighting the severity of the slump.

Local Governments as Market Backstop? Affordable Housing Focus

The proposed plan involves local state-owned enterprises utilizing loans from state banks to purchase unsold homes from distressed developers at substantial discounts. These acquired properties would then potentially be converted into affordable housing, addressing a critical need in many Chinese cities.

Concerns and Feasibility

While officials are debating the plan’s details and feasibility, implementation could take months, if approved. Linan district in Hangzhou serves as a potential microcosm of this approach, with the local government purchasing new apartments for public rental housing.

A major concern for property demand is the large number of pre-sold but unfinished homes, leaving frustrated buyers saddled with mortgages for incomplete properties. Estimates suggest tens of millions of such unfinished apartments exist nationwide.

Analyst View: Addressing Unfinished Developments

Analysts like Nomura believe Beijing will ultimately intervene to ensure the completion of pre-sold homes. This could involve setting up a dedicated agency and a special fund to facilitate such a rescue operation, rather than solely focusing on building public housing from scratch.