China Mulls Over Buying Millions of Unsold Homes to Revive Property Market

China's Government Focuses on Oversupplied Housing Market

In a recent politburo meeting in April, the Chinese government shifted its attention to an oversupplied housing market. The aim was to introduce new rescue policies to stabilize the economy. Bloomberg later reported that the government was contemplating a plan for local governments to buy millions of unsold homes to clear the excess supply.

Government Discussions on the Home-Buying Plan

According to insiders privy to government discussions, the State Council is seeking feedback from various provinces and government entities on the home-buying plan. As per Bloomberg, local state-owned enterprises would be asked to assist in purchasing unsold homes from distressed developers at steep discounts using loans provided by state banks. Many of these properties would then be converted into affordable housing. However, officials are still discussing the plan's details and its feasibility. It could take months to finalize if China's leaders decide to proceed.

Goldman's Take on the Plan

Goldman's Peter Sheren informed clients that this news isn't new and has been speculated for 3-4 weeks. Sheren further noted that this was one of the initial catalysts for the China Property Sector to rally 21% in the past month. Housing prices in China have already dropped by 25-30% from the peak, casting a shadow of economic uncertainty over China's financial system stability and continuing risk for China's macroeconomic backdrop. If authorities proceed with the plan, Goldman's Wang Yi believes this new initiative might help stabilize housing prices.

Estimates on the Required Investment

Shujin Chen, head of China financial and property research at Jefferies Financial Group, estimated that at least 2 trillion yuan ($277 billion) would be needed to revive China's struggling residential housing market. Bloomberg Economics suggested that the property sector is unlikely to stabilize until the gap between housing supply and demand closes. Government data shows that about 3.6 billion square feet of unsold housing inventory linger on the market, the highest level since 2016. Tianfeng Securities estimates the new plan could cost 7 trillion yuan to absorb the inventory in 18 months.

Challenges and Implications

One significant challenge local governments face in reducing the housing surplus is the need to increase debt levels. Banks would also face mounting pressure as rising bad loans and contracting margins have weakened their balance sheets. From a market perspective, this is terrific news as the CSI 300 Real Estate Index initially jumped 5% after the report. However, deep, alarming structural problems persist in the world's second-largest economy.

In conclusion, China's consideration to buy millions of unsold homes to boost the property market is a bold move. However, it's a move fraught with challenges and implications, not least the need to increase debt levels and the pressure on banks. What are your thoughts on this? Do you think it's a viable solution? Share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which is everyday at 6pm.