China is considering a nationwide initiative to reduce supply in real estate markets by urging local institutions to buy from frightened property developers ‘ empty properties.
According to Bloomberg, the State Council is seeking suggestions from various regions and government organizations regarding a proposal that may require local institutions to purchase millions of homes that have already been sold.
The People’s Bank of China’s proposed trial scheme, which set aside 100 billion yuan ($ 13.85 billion ) for special lending to local governments in eight cities, would use the funds to purchase unsold properties for use in local subsidized rental programs, in February 2023.  ,
The eight places are Chongqing, Jinan, Zhengzhou, Changchun, Chengdu, Fuzhou, Qingdao and Tianjin.  ,
The city government in Lin’An, Hangzhou, announced on Tuesday that it would buy some 10, 000 square feet of private residences and convert them into rental accommodation units.  ,
The Politburo of the Chinese Communist Party’s Central Committee meeting on April 30 recommended a global home-purchase program, which would promote high-quality property development, reform the country’s house development model, and promote high-quality property market development.  ,
The meeting made reference to what it called the urgent need to evaluate the supply and demand dynamics in the real estate markets in order to meet the expectations of consumers.
On Friday night, the State Council will hold a video seminar with senior representatives from the cover government, economic officials, local institutions, and banks to explain the housing market.  ,
According to Wang Yi, mind of the Asia Pacific real estate team at Goldman Sachs Research, “it may take a month from now to reduce sellable products to a stage that the business would probably perceive as “balance,” without government interference. We think that a persistent decline in housing prices could result in a negative feedback loop caused by further contractions in credit supply and overall demand.
She claims that as of the end of last year, the inventory of residential properties in mainland China was estimated to be costing about 30 trillion yuan ( US$ 4 trillion ). She claims that the cost of fully building that property will be ten times the amount of housing stock at the end of 2023, or one-fourth of the total.  ,
She claims that there is a significant inventory overhang because the industry needs to be fully funded to return to its pre-normal operating levels in 2024.
Slow progress
If they have 20 % down payments, local governments ‘ urban investment firms can borrow bank loans at a 3 % interest rate to purchase unsold homes, according to the trial program in eight Chinese cities.
However, such a deal is not very attractive because rental yields can typically be just around 3 %. And if home prices decline, urban investment firms could lose money.  ,
As of early this year, loans totaling only 4.1 billion yuan have been taken out in four projects.
The trial program’s progress, according to Li Yujia, chief researcher at the Guangdong Planning Institute’s residential policy research center, is slow because urban investment companies are reluctant to enter markets in a property down cycle.  ,
He suggested that urban investment firms could begin by purchasing some of the unsold properties in a project that has already sold more than 70 % of its apartments, allowing the developers to move on and concentrate on creating new ones.  ,
An urban investment firm can try to arrange for the existing buyers to purchase elsewhere, he said, and then it can immediately buy the project. A project can only have sold a small number of its apartments.
” 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. ” The overall pace of inventory reduction remains slow, despite the gradual increase in property sales.
Yan claimed that property developers have delayed their marketing plans as a result of the slow property demand. He claimed that 55 % of the new homes for sale in the top-tier cities ‘ markets were launched in 2023 or earlier, compared to 68 % in third-tier cities.  ,
Purchase limits
Some analysts believe that local governments ‘ home-purchase initiatives must be combined with a number of other supportive measures to demonstrate some effects.  ,
Other ways to reduce property inventory, according to Zhang Bo, director of the 58 Anjuke Research Institute, include urging homeowners to relocate to larger homes and lowering purchase restrictions.  ,
In April, dozens of Chinese cities made the announcements of their “new properties for old” initiatives, which promise to buy homeowners ‘ existing properties as soon as they move into new ones.  ,
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 can now purchase as many properties as they want in most second-tier cities. Shanghai and Beijing, two of the top tier cities, still have purchase restrictions in place to stop speculative activity.  ,  ,
Over the past one week, shares of most property developers, including the heavily- indebted ones, have surged significantly.  ,
Shimao Group Holdings ‘ stock increased by 160 % to close at HK$ 1.25 from May 8. China Aoyuan shares are now 26 HK cents, which is a double increase.
Agile Group’s shares increased 42 % over the past week after the announcement of the default of its publicly issued dollar bonds on Tuesday.  ,
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