In May 2026, the Chinese real estate market entered a critical turning point after years of downturn. Faced with a sluggish housing market for five years, the Chinese Communist authorities officially launched a large-scale acquisition of existing housing by the “national team,” utilizing hundreds of billions in refinancing loans to support the initiative, and issuing asset securitization (REITs). Experts interviewed pointed out that fundamentally, this move is shifting the debt crisis of real estate enterprises and bad loans from banks to the general public.
The downturn in the Chinese real estate market has deepened significantly. According to data from the National Bureau of Statistics of the Communist Party (NBS) as of the end of April, the nationwide inventory of unsold commercial housing reached 778 million square meters. From January to March this year, national real estate development investment decreased by 11.2% compared to the same period last year, while sales of newly built commercial housing dropped by 16.7%, indicating that market confidence remains fragile.
Moreover, as of the first quarter of this year, the inventory turnover period of new commercial residential buildings in one hundred cities nationwide exceeded 27 months, with some third and fourth-tier cities even exceeding 40 months.
Facing this grim situation, the Communist Party’s policy direction took a significant turn in 2026. The “house acquisition surge” orchestrated by local state-owned enterprises and supported by central financial leverage entered its peak in May, transitioning from local pilot projects to a nationwide unified action.
At the end of 2025, the Central Economic Work Conference incorporated “encouraging the acquisition of existing commercial housing” in its deployment plan, and in March this year, the Central Government Work Report further proposed “exploring multiple channels to revitalize existing commercial housing,” signaling a progressive approach in policies.
Following the Political Bureau meeting of the Communist Party on April 28 deciding to “effort to stabilize the real estate market,” within just half a month, over 80 cities including Shanghai, Guangzhou, Tianjin, Suzhou, and Wuhan have intensively introduced new policies.
On May 13, Hunan Province took the lead in issuing the “Ten New Hunan Policies” jointly by nine departments, including the Provincial Housing and Construction Department, Development and Reform Commission, and Finance Department, which explicitly supported using local government special bonds to acquire existing commercial housing, transforming them into affordable housing, talent housing, and youth apartments, and allowing qualified rental assets to be securitized through REITs operations.
Subsequently, first-tier and key second-tier cities quickly followed suit. Tianjin listed “actively revitalizing existing commercial housing” as the primary task of its real estate policy; Guangzhou closely linked the acquisition operation with urban village renovation, supporting the acquisition of existing residential properties for resettlement; while Suzhou expanded the acquisition purposes to include elderly care and industrial needs.
A Tencent account, “Zhi Ben Lun Zi,” reported on May 16 that currently more than 80 cities nationwide have announced support for state-owned enterprises to acquire existing housing, with 36 key cities issuing clear housing collection notices, demonstrating strong promotion by the central leadership.
The report stated that the core support of this large-scale action lies in financial leverage, which originated two years ago. In May 2024, the People’s Bank of China established a 300 billion yuan refinancing program for affordable housing at a 1.75% interest rate, initially providing 60% of the funds, supporting approximately 500 billion yuan in bank loans.
In September 2024, the central bank increased the funding support ratio to 100%, to expedite the acquisition of existing commercial housing and promote the liquidation of affordable housing.
However, experts view this move as a crisis-ridden strategy. Senior media figure Mike Li told Dajiyuan that the approach where local state-owned enterprises acquire existing housing, package them as asset bundles, and then list them through real estate investment trust funds (REITs) for public offering, resembles the mindset of the “three-year poverty alleviation plan for state-owned enterprises” in the early 1990s.
He commented, “This is ‘cashing in’ on the packaged assets that were on the brink of bankruptcy, thus shifting the crisis onto the public.”
Dr. Wang Guochen, deputy researcher at the China Economic Research Institute, went further in his criticism during an interview. He pointed out that the policy of securitizing rental assets (REITs) introduced by Hunan Province is essentially “harvesting leeks.”
He explained that securitization involves cashing in on the future decades’ loan income at once, and the public often remains unaware of the complex debt structure behind the product. “Once problems arise, the responsibility that was initially borne by banks is now shifted to the public.”
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina also told Dajiyuan that REITs are meant to provide investment channels in normal societies, but it is clear that the Chinese Communist Party’s approach is not about increasing investment opportunities, but about packaging unsellable houses, i.e., bad debts and non-performing loans, as securities marketed to the public.
He believes this is a “take-what-you-can-get” crisis transfer behavior, and carries a sense of “deceptive advertising.”
Despite the official deployment of funds amounting to hundreds of billions, it still appears insignificant compared to the massive black hole in the Chinese real estate market.
Professor Xie Tian noted that the scale of investment in real estate development in past years was in the trillions of RMB, and merely introducing a 300 billion yuan repurchase plan would clearly be a drop in the bucket. He believes that at best, this can express the Communist Party’s desperate struggle attitude.
Dr. Wang Guochen provided a more specific estimate of the required funding scale: if the aim is to stabilize the situation in the short term, at least 1 trillion RMB is needed; if the intention is to completely resolve the surplus housing and endangered developers, then at least 10 trillion RMB is necessary.
He analyzed, “The central government is unwilling to shoulder the responsibility, local governments generally lack funds, and state-owned banks and enterprises are unable to bear this burden of 10 trillion RMB.”
According to historical data from the National Bureau of Statistics of the Communist Party, since the housing market reform in 1998 and the exponential increase in real estate development funding in the 2000s, the accumulated investment amount ranges from 22 trillion to 26 trillion RMB.
“Unless the central government massively prints money or issues government bonds, the problem cannot be fundamentally solved,” Wang Guochen expressed pessimism, stating that the real estate bankruptcy has been ongoing for nearly five years, and the economy is already severely affected, even if 10 trillion RMB were to be allocated now, it would be too late, at most only stopping the rapid decline of the housing market without a possibility of recovery.
Furthermore, the fairness and “corruption” issues during the acquisition process have raised concerns. Xie Tian believes that the large-scale house acquisition initiative may easily turn into a tool for seeking rent-seeking opportunities.
“Once these hundreds of billions in funds are introduced, whose houses will be acquired?” he questioned, suspecting that the government will prioritize acquiring real estate projects with “connections” or direct benefits, helping so-called “privileged families” alleviate their difficulties, while enterprises without background or smaller businesses might find it difficult to benefit.
Xie Tian pointed out, “This is the ruling class creating conveniences for themselves to make money, without much benefit to the entire real estate sector.”
The stagnation of the housing market has seriously eroded the profitability of the Chinese banking industry. Currently, the one-year deposit interest rate of major banks has dropped to 0.95%, and the net interest margin has fallen below the regulatory warning line of 1.8%.
Wang Guochen analyzed that if the government forces banks to acquire non-profitable existing housing assets, these assets will become the banks’ “bad positions,” further impacting the stability of the financial system.
The data from the foreclosure market further confirms the weak demand. According to a report from the China Index Research Institute, among the 719,000 foreclosed houses put up for auction in 2025, only 169,000 were sold, with the transaction volume decreasing compared to the previous year, and the average discount rate remaining at a high of 26%.
Although some state-owned enterprises like Huzhou Chanfeng Enterprise and Guangzhou Nansha Urban Operations have purchased foreclosed houses at a valuation of 60% to 80% to convert them into affordable housing, analysts describe this as “plugging a hole in a leaking dam.”
Sam Radwan, CEO of Enhance International, a real estate consulting company in Chicago, told Reuters that bankrupt Chinese developers have not been liquidated, and their debts – including payments for unfinished projects – are still recorded as assets on banks’ books and are being transferred at significantly discounted rates rather than being written off directly.
“The longer you delay the pain, the longer your economic slowdown will persist,” Radwan depicted. He estimated that this real estate crisis may last “decades or even longer, potentially spanning a generation.”
The operating rules of the Chinese real estate industry, which previously relied on “high leverage, fast turnover,” may be shifting towards a “stock management” model led by local state-owned enterprises and urban investment companies. Although officials promote this policy as aiming to “clear inventory and protect people’s livelihoods,” it appears precarious in the face of reality.
Official data from May 18 also revealed that in April, the prices of new homes in 70 major and medium-sized Chinese cities fell by 3.5% compared to the same period last year, marking the 34th consecutive month of negative growth.
Experts caution that under the dilemma of “central government unwilling to bear responsibility, local governments lacking funds, and the public lacking confidence,” investors should avoid becoming victims of this crisis transfer.
As Wang Guochen stated, the real estate issue is the “fundamental problem” of China’s economic slowdown, with a large number of homeowners teetering on the edge of insolvency. Without addressing the structural imbalance of supply and demand and the crisis of confidence, any administrative intervention is just distorting the market forces. This could lead to the delay and spread of systematic risks, potentially igniting the fuse for the next financial storm.