An unnamed Communist Party policy advisor described the recently introduced real estate rescue plan as “like putting a giant band-aid on a wound”. Experts predict that the slump in the Chinese real estate market may persist until the end of 2025.
In May, the CCP rolled out market support policies that require certain regions to lower down payment requirements, eliminate the lower limit on mortgage loan rates, relax purchase restrictions, and also instruct banks to provide up to 300 billion yuan in refinancing for affordable housing to support local governments in acquiring unsold properties. These properties will then be rented out by local governments as social housing.
An article by Lizzi Lee, a researcher at the Asia Policy Institute, published in The Diplomat, raises doubts about the latest measures announced by Beijing to stimulate the real estate industry.
On the surface, the new policy aims to restore buyer confidence—trust that has been eroded by years of project delays, developer defaults, and converting excess inventory into economically viable housing to alleviate developer financial pressure and meet the housing needs of low-income groups.
Experts believe that in a market characterized by oversupply, reduced demand, and widespread lack of confidence, these measures may prove to be another futile effort to stop the bleeding. The most concerning issue lies in the growing disconnect between the formulation and implementation of CCP policies.
The disparity between Beijing’s ambitious directives and reality has become a recurring theme in China’s economic governance. Conflicting directives supporting the housing market and curbing speculation have left local officials in a bind, often unable to achieve either objective.
This ongoing mismatch has raised questions about the long-term viability of government efforts to stabilize the real estate market and restore investor and buyer confidence. As an unnamed Chinese policy advisor put it, the latest real estate rescue plan is like “putting a giant band-aid on a wound”.
For developers already grappling with cash flow issues, the requirement to swap properties further exacerbates their financial resource strain, given the staggering amount of capital needed for China’s massive number of unfinished projects.
According to estimates by Goldman Sachs, the new stock of unsold housing in China amounts to 30 times the monthly sales volume. Assuming the government purchases half of the unsold housing at market prices and meets the average sales volume for the first nine months of 2018, a total investment of 7.7 trillion yuan would be required.
Furthermore, the design proposed by the new measures for local governments to acquire properties for rental may burden them with more government debt if the costs exceed the income generated from financed properties.
The Financial Times reported that according to data from the People’s Bank of China, only 247 billion yuan of the 300 billion yuan real estate relief plan has been disbursed so far, falling short of the plan by 8%. These low-yield loans lack incentives for both banks and local governments to drive implementation.
Analysts at Longzhou Economic Information believe that the current interest rates for bank loans are close to corporate loan rates. According to January data from the People’s Bank of China, the weighted average interest rate for corporate loans in 2023 was 3.88%. The rental yield from government-purchased properties is only equivalent to the current rental yield in Chinese cities, averaging between 1.75% and 3%.
Clearly, banks do not see providing refinancing for real estate as a rational or high-yielding proposition.
Experts quoted by Newsweek on Monday indicated that the efforts made by the CCP government to stabilize the distressed real estate industry have failed, with the industry’s problems likely to continue putting downward pressure on the Chinese economy.
David Lubin, Senior Research Fellow at the Royal Institute of International Affairs Global Economy and Finance Program, stated that the real estate industry in China does not seem to have truly improved, with no evidence indicating that Beijing’s measures are sufficient to stabilize the market.
In June, the average price index for housing in 70 cities nationwide dropped by 7.9% year-on-year, marking the largest annual decline on record.
Kent Deng, Professor and Director of the China in Comparative Perspective Network and Confucius Institute at the London School of Economics, told Newsweek, “Over the past 12 months, the real estate market crisis has been intensifying, both in the new construction and resale markets.”
“What we are seeing is a decline of at least 40% in prices in both submarkets, with no signs that this trend will stop,” he added. “In fact, prices may further drop by 10–20% before stabilizing.”
Deng suggested that the downturn in the Chinese real estate market may continue until the end of 2025.