China To Reboot Markets With Home Purchases
Date
5/16/2024 7:11:10 PM
(MENAFN- Asia Times) China is considering a nationwide scheme to reduce inventory in the property markets by urging local governments to purchase unsold homes from distressed property developers.
The State Council is seeking feedback from several provinces and government entities on a proposal that would require local governments to buy millions of unsold homes from the markets, according to Bloomberg.
The plan is similar to a trial scheme proposed in February 2023 by the People's bank of China, which set aside 100 billion yuan ($13.85 billion) for special lending to local governments in eight cities that would use the funds to buy unsold properties for use in local subsidized rental programs.
The eight cities are Chongqing, Jinan, Zhengzhou, Changchun, Chengdu, Fuzhou, Qingdao and Tianjin.
On Tuesday, the district government in Lin'An in Hangzhou said it will purchase some private homes with a total gross floor area of 10,000 square meters and turn them into rental housing units.
The nationwide home-purchase plan was proposed after a meeting of the Politburo of the Central Committee of the Chinese Communist Party on April 30 called for reducing property inventory, reforming the country's property development model and promoting high-quality development of the property markets.
The meeting pointed to what it called an urgent need to review the supply and demand situations in the property markets in order to meet homebuyers' expectations.
The State Council will hold a video conference with senior officials from the housing ministry, financial regulators, local governments and banks to discuss the property market on Friday morning.
Latest stories
US ban on Russian uranium could backfire
US auto industry scam: overpriced parts, repairs
Dit, dah, dit: Russia's army still uses Morse code “Without government intervention, it might take a year from now for saleable inventory to be lowered to a level that the market would likely see as 'balance',” Wang Yi, head of the Asia Pacific real estate team at Goldman Sachs Research, says in a research note.“We believe a prolonged housing price decline could trigger a negative feedback loop by further contraction in aggregate demand and credit supply.”
She says the residential property inventory in mainland China was estimated at about 30 trillion yuan (US$4 trillion) on a cost basis as of the end of last year. If that property is fully built-up, she says, this will be about 10 times what the market sold in 2023 or one-fourth of total housing stock as of end-2023.
She says the funding gap for the industry to fully reach back-to-normal operation levels in 2024 is about 3 to 4 trillion yuan, resulting in a significant inventory overhang.
Slow progressAccording to the trial program in eight Chinese cities, local governments' urban investment firms can borrow bank loans at a 3% interest rate to purchase unsold homes if they have 20% down payments.
But such a deal is not attractive as rental yields may usually be just around 3%. And urban investment firms will risk losing their money if home prices fall.
As of early this year, loans totaling only 4.1 billion yuan have been taken out in four projects.
Li Yujia, chief researcher at the Guangdong Planning Institute's residential policy research center, said the progress of the trial program is slow as urban investment companies hesitate to enter markets in a property down cycle.
He said urban investment companies can begin by buying some unsold homes in a project that has already sold more than 70% of its apartments, allowing property developers to move on and focus on new ones.
If a project has only sold a small number of its apartments, he said, an urban investment firm can try to arrange for the existing buyers to purchase elsewhere, and then it can purchase the project all at once.
“Whether the government's plan to reduce property inventory will succeed depends on the demand side,” said Yan Yuejin, research director of Shanghai E-House Real Estate Research Institute.“Although property sales are picking gradually up, the overall pace of inventory reduction remains slow.”
Yan said the sluggish property demand has also made property developers postpone their marketing schemes. He said about 55% of the new homes for sale in the markets in top-tier cities had been launched in 2023 or earlier while the ratio in third-tier cities reached 68%.
Purchase limitsSome analysts said local governments' home purchase programs must be launched together with a basket of other supportive measures in order to show some effects.
Sign up for one of our free newsletters The Daily ReportStart your day right with Asia Times' top stories AT Weekly ReportA weekly roundup of Asia Times' most-read stories
Zhang Bo, director of the 58 Anjuke Research Institute, said other ways to reduce property inventory include encouraging homeowners to move to larger homes and canceling purchase limits.
In April, dozens of Chinese cities announced their“new properties for old” schemes, in which local governments guarantee to buy homeowners' existing properties once they purchased new homes.
Since May 9, a dozen second-tier cities including Hangzhou, Xian and Fosan have announced, separatelly, their decisions to cancel their property purchase limits – most of which have been implemented for more than a decade.
It means that people in most second-tier cities can now buy as many properties as they want. First-tier cities such as Shanghai and Beijing still have purchase limits in place to discourage speculative activities.
Over the past one week, shares of most property developers, including the heavily-indebted ones, have surged significantly.
Shares of Shimao Group Holdings have gained 160% to close at HK$1.25 from May 8. Shares of China Aoyuan have doubled to 26 HK cents.
Agile Group, which announced the default of its publicly issued dollar bonds on Tuesday, has also seen a 42% growth in its shares during the past one week.
Read: Unleashed bank deposits misused in Chinese economy
Follow Jeff Pao on X:
@jeffpao3
Already have an account?Sign in Sign up here to comment on Asia Times stories OR Thank you for registering!
An account was already registered with this email. Please check your inbox for an authentication link.
MENAFN16052024000159011032ID1108224156
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.