China’s real estate industry continues to face difficulties, with state-owned enterprises and government enterprises refraining from purchasing land. Even Beijing’s call for local governments to “collect housing inventory” has been met with a cold reception. Experts point out that under economic difficulties, both state-owned enterprises and local governments are reluctant to invest, opting to wait and avoid risks, leading to internal disunity within the Chinese Communist Party.
In an effort to reduce the housing stock, the Chinese Communist Party had previously called for the acquisition of existing commercial housing for the purpose of providing affordable housing. On April 30, the Party’s Politburo proposed to “coordinate research on digesting existing real estate.” This was deemed one of the important measures to “promote the construction of a new model for real estate development.”
In May, the People’s Bank of China announced a 300 billion yuan loan plan for affordable housing, urging over 200 cities to advance the program. By June, the Ministry of Housing and Urban-Rural Development expanded the program to county-level areas, encouraging 387 lower-level counties to participate.
However, according to Bloomberg, by August, only 29 cities and counties had responded to the bailout initiative, with a lack of detailed guidelines. Faced with demands from Beijing, local governments are cautiously controlling costs. Some cities suggested that developers sell houses to the government at half price. For instance, Foshan City in Guangdong proposed purchasing at prices not exceeding 50% of nearby similar projects, while Dongguan City planned to set the price for unsold affordable houses at around 50% of new house prices.
Public data shows that by the end of June, only 121 billion yuan of the People’s Bank of China’s 300 billion yuan loan plan for affordable housing had been utilized, accounting for 4%; out of the 580 billion yuan loan funds, only 8% had been deployed.
Currently, China has 382 million square meters of unsold real estate inventory. According to a report by Ding Zuyu, the chairman of the real estate information platform Shanghai Krei Information Technology Co., as of July, the purchase rate of unsold apartments nationwide was only 1.9%.
On July 19, the China Real Estate News also published an article titled “Few State-owned Enterprises Willing to Acquire! Many Places Face Challenges in Collecting Inventory Housing,” focusing on the cold response to collecting inventory housing.
Taiwanese economic expert Huang Shicong told The Epoch Times that no one will buy goods destined to decline. Local governments are heavily indebted, and while the central government aims to rescue the market, the local authorities see no benefits in complying.
“Local debts are quite serious, and the central government cannot help. It allocates a part of the funds to buy houses to support the real estate industry. However, even after using this money to buy real estate, the local governments would need to allocate more funds. If the prices drop in the future, it would worsen the local government’s financial burden. Therefore, they prefer to keep the money so they can pay salaries.”
Local governments in China have long been under financial pressure, with local government budget spending decreasing in the first seven months of this year. Among 31 provinces and municipalities, only Shanghai achieved a surplus in the first half of the year. Land sales revenue is a crucial source of income for local governments, but it has decreased significantly in recent years. Official data shows that in July, land sales revenue dropped by a staggering 40.3% year-on-year, marking the largest decline since July 2022 for the second consecutive month.
Huang Shicong believes that currently, all parties in mainland China are just biding their time, lying low, and waiting to see how the real estate market unfolds.
“The main reason is that everyone now knows China is facing major economic challenges, and they would rather wait and see. This atmosphere has a significant impact on the Chinese mainland economy. This sense of powerlessness or lying low is caused by the top policies. Until now, this is a situation that cannot be reversed.”
China’s problem expert Wang He told The Epoch Times that the People’s Bank of China’s 300 billion yuan housing loan plan mandated that local governments must not increase their implicit debts, but it is challenging to implement in reality.
“Local governments are not fools. The entire Chinese property market is plummeting into a bottomless pit, and now everyone is playing it safe. Regions lack money, have uncertainties, and this model lacks commercial viability. The Chinese authorities have implemented many policies to rescue the property market, but each department only goes through the motions, and the policies are not effectively implemented. Everyone is lying low, and the market continues to decline, creating a vicious cycle.”
Wang He pointed out the deep-rooted conflicts between the central and local governments, where in specific interests, the central government does not provide a safety net and leaves the burden to local governments. Therefore, it is difficult for the central authorities to force local compliance through administrative orders. For instance, the push to ensure house transactions didn’t succeed despite the high-pressure policies from the central government and political bureau due to social stability concerns.
Bloomberg reported on August 2 that the Chinese government rejected the International Monetary Fund’s proposal to use central government funds to complete unfinished housing projects.
Wang He stated that while the Chinese government wants to save the real estate market, they are hesitant to invest, and their policies are not bearing fruit. Both local governments and state-owned enterprises see lying low as the best way out. This reflects the internal discord within the Chinese Communist Party. “Before the table is turned over, each one is figuring out their own ways to weather the storm and lie low.”
Apart from the lukewarm attitude of local governments towards acquiring existing commercial housing for affordable housing, China’s media Economic Observer reported on the 10th that central and state-owned enterprises such as Poly and China Resources have significantly reduced land acquisition this year, fearing potential investment risks.
Data from the economic big data platform Wind shows that in the first 8 months of 2024, the mainland China’s land transaction amount was 1.42 trillion yuan, a 31% year-on-year decrease, only one-third of the same period in 2021.
American economist David Huang told The Epoch Times that due to the economic downturn, whether state-owned enterprises, central enterprises, or private enterprises, have significantly reduced their available funds. Additionally, banks are now very cautious about lending. Due to poor overall market activity, the risks are high, causing many state-owned and central enterprises to refrain from land acquisition.
David Huang believes that the lackluster performance of China’s real estate market is due to excessive taxes, very low management efficiency in the real estate market, and the sustained inactivity of China’s economic activities. Private economic activities are in a slump, and both exports and domestic demand are negative, leading to the lack of pillars supporting the prosperity of the real estate market.
Professor Xie Tian from the Darla Moore School of Business at the University of South Carolina in the United States told The Epoch Times that state-owned enterprises also want to make money, but with unsold houses from current projects, they avoid investing further and trapping their funds. Hence, they are unlikely to acquire more land.
He believes that this situation has a huge impact on the Chinese economy, with chain reactions affecting various contractors, related building materials, and even home appliances. “Why is real estate so important? It involves not only housing and land issues but also many other industries.”