China’s latest housing initiative, aimed at addressing the issue of vacant properties, has drawn skepticism from analysts, who believe it falls short of what is needed to end the ongoing crisis in the sector. The package of measures, introduced on Friday, includes a 300 billion yuan ($42 billion) facility from the People’s Bank of China (PBOC) that will fund bank loans for state-owned companies to buy up unsold housing stock. However, economists have expressed concerns about both the limited size of the measure relative to the stock of unsold housing and the risk that it won’t be fully implemented.
The decline in China’s sales of new homes has accelerated in recent months, driven by a shift in household preferences towards the secondary market, leading to an accumulation of unsold homes and empty land to the highest levels in years. This has discouraged new construction and contributed to defaults by developers, including large state-owned firms.
A previous PBOC lending program for commercial banks aimed at rental housing projects saw a low level of take-up, with only 2% of the funds utilized. The new destocking initiative has been trialled in eight cities and has worked best in areas with population inflows—a condition not met by all major urban centers.
To boost bank lending to developers and ensure they finish existing projects, officials are doubling down on a so-called “white list” effort that identifies developments meriting support. However, the program is limited by the incentives of commercial banks, which worry about developer defaults impacting their bottom line. The same issue applies to new measures that allow banks to lower mortgage rates and down-payment requirements.
Analysts also point out that households might use lower rates to buy existing properties rather than newly built ones, as those prices have fallen further, and delivery isn’t a concern. China’s existing-home sales overtook new homes by area for the first time on record last year, underscoring a fundamental shift in buying habits that means less cash for developers.
Despite some positive signs, such as increased visits to sales centers reported by Chinese state media, analysts remain cautious about the overall effectiveness of the measures in stemming the property crisis. They believe that the package is too small to make a significant dent in the supply of vacant properties and that implementation challenges could limit its impact.
