Chairman and Chief Editor
Bedour Ibrahim

Beijing to Buy millions of unsold homes to revive Chinese Property Market

Thursday 16/May/2024 - 12:16 AM
أصول مصر


Beijing is weighing a proposal to have local governments nationwide purchase millions of unsold homes to save Chinese Property market in a move which comes as officials vow to address biggest drag on economy and in what would be one of its most ambitious attempts yet to salvage the beleaguered real estate market، said some Officials familiar with the matter، asking not to be identified discussing a private matter.

Beijing State Council is seeking feedback from several provinces and government entities on the preliminary plan of buying  millions of unsold homes to save Chinese Property market، while China has already experimented with several pilot programs to clear excess housing inventory with the help of state funding، the latest plan would be much larger in scale.


Housing prices in China have already fallen 25-30% from the peak


Beijing State Council  warned that housing prices in China have already fallen 25-30% from the peak and presented a dark cloud of economic uncertainty over China's financial system stability and continued risk for China's macroeconomic backdrop but if authorities do proceed with the plan، the new initiative might help to stabilize housing prices. 

Beijing is considering a plan of preliminary proposal for local governments nationwide to buy millions of unsold homes، Bloomberg News said on Wednesday، after a meeting of leaders of the ruling Communist Party called for efforts to clear mounting housing inventory  and to save property market.


Gathering feedback on the preliminary plan from various provinces


The State Council in Beijing is gathering feedback on the preliminary plan from various provinces and government bodies، as China's property sector has been in a deep slump for years، hit by a debt crisis among developers، meanwhile، Tianfeng Securities estimates the new plan could cost 7 trillion yuan to absorb the inventory in 18 months.


China's blue-chip CSI 300 real estate index climbed as much as 6% at one point following the report of، before paring gains، while the yuan firmed after Beijing announced it is considering a proposal to have local governments nationwide purchase millions of unsold homes to save Chinese Property market.

Since 2022، waves of Beijing policy measures have failed to turn around the Chinese Property market sector that represents around a fifth of the economy and remains a major drag on consumer spending and confidence.


The risks of more bad loans and continued weak sales


Banks have been reluctant to heed Beijing 's repeated nudges to bolster credit to the embattled sector given the risks of more bad loans and continued weak sales that home sales value of top 100 developers in China in April slid 45% from a year earlier، according to recent surveys published by CRIC، a major real estate information provider.

The Politburo of the Communist Party held a meeting on April 30، saying it would improve policies to clear mounting housing inventories and dozens of cities have offered subsidies to encourage residents to replace their old apartments with new ones، in order to sell their growing stock of new apartments and provide crucial cash-flow to ailing developers.


Local state-owned enterprises to help purchase unsold homes


Local state-owned enterprises would be asked by Beijing to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks، according to the report، adding that many of these homes would then be converted into affordable housing.

Officials in China are debating the Beijing plan's details and feasibility، and it could take months for it to be finalised، if the country's leaders decide to go ahead، while linan district in the eastern city of Hangzhou issued a notice that the local government will purchase new apartments from private developers for public rental housing in the district، which has 650 thousand residents with the total area of the flats purchased does not exceed 10 thousand square metres and the homes will be existing houses or pre-sold homes available for delivery within one year.

The biggest drag on property demand is that cash-strapped private developers


One of the biggest drags on property demand is that cash-strapped private developers have halted construction on a large number of new homes that were pre-sold but now cannot be delivered on time، while the buyers of these homes،  are continuing to pay off their mortgages.


Estimates vary widely، but analysts in Beijing agree there are tens of millions of uncompleted apartments across China after a building boom turned to bust and the government will eventually have to address concerns about homes being delivered.


Beijing should reach into its own pockets to support its plan


Beijing should reach into its own pockets، even with printed money from the People's Bank of China، to support the completion of new homes that were pre-sold by developers، as such a move made more sense than building public housing from scratch as the country’s property sector has seen a deep slump over the years، causing a crisis among the developers.

It is expected that eventually Beijing will set up a special agency and set aside a special fund for such a rescue as China is planning local government buying millions of unsold houses to revive property Market.


After buying the property from the distressed developers using loans given by the state banks، the government bodies would transform the complexes into affordable housing as the government undertakes the measure save the struggling property market in the country. 


The banks are not ready to obey the government plan


The banks too were not ready to obey the government’s suggestion to provide credit to the struggling sector amid the risk of weak sales as it is said that there are thousands of uncompleted apartments across China، while the confidence of the new developers also lost amid the existing developers’ collapse، bringing the condition of the sector from bad to worse over the years.

However، the officials are mooting a detailed plan and feasibility، and it is believed to take a few months for the final draft of the plan to be completed but the government has decided to go ahead with the plan as the Chinese government's newfound focus on an oversupplied housing market was setting the stage to usher in new rescue policies to stabilize the economy.


At least 2 trillion yuan ($277 billion) is needed to save residential housing market


It is estimated that at least 2 trillion yuan ($277 billion) is needed in this fiscal bazooka to bottom China's ailing residential housing market،   and the property sector  is unlikely to stabilize until the gap between housing supply and demand closes، while Beijing government data shows that about 3.6 billion square feet of unsold housing inventory linger on the market، the highest level since 2016.

One major problem local governments face in reducing the housing surplus is the need to increase debt levels and banks would also face mounting pressure as rising bad loans and contracting margins have weakened their balance sheets.