China Mulls Government Purchases of Unsold Homes to Ease Glut
Amidst a prolonged slump in the property market, China is considering a bold plan to have local governments across the country purchase millions of unsold homes from distressed developers. This ambitious proposal, if implemented, would mark a significant escalation in the government’s efforts to address the mounting housing inventory that has weighed heavily on the economy.
According to sources familiar with the matter, the State Council is currently seeking feedback from various provinces and government entities on the preliminary plan. Local state-owned enterprises would be entrusted with the task of purchasing unsold homes at steep discounts using loans provided by state banks. A substantial portion of these properties would then be converted into affordable housing to meet the growing demand for accessible and low-cost housing options.
The government’s plan is still under debate, with officials weighing the details and assessing its feasibility. Sources indicate that it could take several months to finalize the plan if China’s leaders decide to proceed. However, if implemented, it would signal a new phase in the government’s multifaceted campaign to address the challenges facing the real estate sector.
China’s home sales have plummeted by nearly 50% in the first four months of 2023, while unsold housing inventory has surged to an eight-year high. This crisis has exacerbated the economic downturn, threatening to put millions of people at risk of unemployment or reduced incomes. Investors have been eagerly anticipating details of the government’s next moves after the ruling Communist Party pledged to explore new approaches to ease the real estate crisis in April 2023.
In the past, Beijing has experimented with state purchases of unsold apartments, but these smaller-scale initiatives have yielded limited success. However, the proposed plan envisions a much larger and more coordinated effort, leveraging the resources of local governments and state-owned enterprises to absorb the excess housing inventory.
While the plan has the potential to provide immediate relief to the property market, it also raises concerns about the increasing debt burden on local governments and the potential impact on the balance sheets of state banks. Nevertheless, the Chinese government appears determined to address the crisis and restore stability to the property sector, which remains a key driver of economic growth.
