Chinese government purchasing unsold homes

The Chinese government nationwide bought millions of unsold homes after a meeting of leaders of the ruling Communist Party called for efforts to clear mounting house inventory, as per Bloomberg news.

According to those acquainted with the situation, the State Council is interviewing different provinces and government agencies about their opinions of the draft plan. After the revelation, China's benchmark CSI 300 real estate index (.CSI000952), opened a new tab and increased by as much as 6% at one point before retreating as the currency strengthened.

While Chinese government 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.

Developer debt has caused a severe downturn in China's real estate market for several years. Since 2022, several legislative initiatives have failed to revive the industry, which accounts for around 5% of the GDP and continues to be a significant barrier to consumer confidence and expenditure.

Given the likelihood of further bad loans and ongoing sluggish sales, banks have hesitated to respond to Beijing's persistent proddings to lend to the beleaguered sector. Recent polls by major real estate information provider CRIC show that the average home sales value of the top 100 developers in April decreased by 45% compared to the same month last year.

On April 30, the Communist Party Politburo met and announced plans to enhance policies aimed at reducing the growing number of housing inventory. According to the article, state banks would grant loans to local state-owned firms so they could buy unsold properties from distressed developers at substantial discounts. Many of these residences would subsequently be turned into affordable housing.

The administration of Hangzhou's eastern district, Linan, said on Tuesday that it will buy brand-new homes for public rental housing from private developers. The district, home to 650,000 people, declared that the overall area of the apartments acquired did not surpass 10,000 square meters. The residences will be pre-sold or existing housing that may be delivered in a year.

Chinese Government
Image from The economic Times

Cash-strapped private developers have stopped building on a substantial number of new houses that were pre-sold but cannot now be delivered on schedule, which is one of the largest drags on housing demand. In the meanwhile, the purchasers of these houses are still making mortgage payments.

Although estimates differ greatly, experts concur that Chinese government has tens of millions of unfinished apartments as a result of a building boom that ended in a crash.

"It's been our view that Beijing will eventually have to address concerns about homes being delivered," economists from Nomura said in a recent research note.

"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," noting such a move made more sense than building public housing from scratch.

If the Chinese government decide to move forward, officials there are now discussing the plan's specifics and viability; if they do, it may take months for it to be finished, the article stated. For many years, China's real estate market has been in severe decline. Waves of legislative initiatives have been ineffective since 2022 in trying to revive the industry, which accounts for 5% of the nation's GDP and continues to be a significant drag on confidence and consumer spending.

Although estimates differ greatly, experts concur that China has tens of millions of unfinished apartments as a result of a building boom that ended in a crash. Given the likelihood of further bad loans, banks have been hesitant to respond to Beijing's persistent proddings to provide financing to the beleaguered industry.

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