In May 2024, the Chinese central government called upon over 200 cities to address the pressing issue of unsold residential properties, a strategy aimed at tackling the overwhelming housing oversupply crisis. Three months later, the slow response from local authorities reveals the complexities behind this initiative. Only 29 cities have followed through on the government’s request, highlighting significant economic challenges faced by local officials.
The sluggish pace of implementation is particularly concerning as it reflects the broader struggles within China’s real estate sector, where a significant property slump threatens both economic stability and President Xi Jinping’s ambitious housing goals. Local governments find themselves caught between fulfilling directives from Beijing and managing their financial limitations. With an estimated 382 million square meters of excess residential inventory—roughly equating to the entire city area of Detroit—the urgency for action is palpable.
Local bureaucrats are navigating a landscape of diminishing apartment prices, which are anticipated to decline further by at least 30% in major cities. This precarious economic belief makes purchasing unsold apartments a risky venture. As reported by Jefferies Financial Group Inc., local administrators are cautious about investments that currently yield rental returns averaging just 1.4%, which is below the central bank’s 1.75% funding rate. This disparity has led to a lack of motivation for local governments to initiate purchases, as the financial upside barely covers the associated costs.
Across various cities, some have chosen to adopt aggressive negotiation tactics to mitigate their financial exposure. For instance, Foshan in southern Guangdong has proposed a buying strategy that limits purchase prices to no more than 50% of comparable projects, while Dongguan aims for affordable housing pricing at around half of newly constructed homes. The objective appears to be securing advantageous purchase conditions amid a faltering market.
This situation raises questions about the willingness of distressed developers to part with their inventory. There are concerns that the socioeconomic implications of these transactions could alienate current homeowners, further complicating the matter. This potential backlash is yet another consideration for local leaders as they weigh the benefits against the risks of acting on the government’s request.
Regional finances are already under severe strain, exacerbated by falling revenues from land sales across China. Recent data reveals that only Shanghai recorded a fiscal surplus during the first half of the year. As several provinces grapple with the dual pressures of paying down debts and stimulating growth, the outlook remains bleak. Analysts are skeptical about a full-scale rollout of the state-sponsored home-buying program, given the evident lack of funding and the credit risks borne by banks and state-owned enterprises.
In light of this, the People’s Bank of China has stepped in with financial initiatives, encouraging local governments to utilize special loans for purchasing excess properties. This could unlock potential funding of up to 1.6 trillion yuan—an amount that would be significant compared to the anticipated 1 trillion yuan for the home-buying program in 2024 and 2025.
However, stringent qualification requirements have further complicated matters. For instance, a suburban district in Hangzhou recently mandated that target buildings be fully completed and equipped with ample parking. Meanwhile, Chongqing has insisted that potential investment properties be situated within a kilometer of essential amenities like subway stations, schools, and hospitals.
Nonetheless, a shift is occurring as cities like Shenzhen are beginning to relax these stringent rules in hopes of expanding their eligibility criteria. For example, Shenzhen has recently eliminated its previous requirement that potential acquisition targets be fully constructed. This trend could lead to a broader acceptance of properties that may have previously been disqualified.
In summary, while the central government’s initiative to alleviate the housing crisis through the acquisition of unsold homes is well-intentioned, the execution faces significant hurdles. The prevailing economic conditions, combined with local governmental hesitation and strict purchasing criteria, create a challenging environment for the realization of this ambitious plan. As more cities consider easing their rules, the question remains: Will these reforms be sufficient to restore confidence in the beleaguered housing market and catalyze a genuine recovery?
These developments promise to shape the future of China’s real estate landscape, making it an essential topic for investors and homeowners alike to monitor closely.