Chinese Authorities Consider Proposal to Purchase Millions of Apartments
Informants have disclosed that the Chinese Communist Party (CCP) authorities are considering a proposal that would require local governments across the country to purchase millions of apartments in order to alleviate the surplus housing inventory. This move may be a risky new attempt by the CCP to salvage the real estate industry.
According to sources who spoke to Bloomberg, the State Council of China is soliciting feedback from multiple provinces and government entities on this plan. Two informants mentioned that state-owned enterprises in various regions are being urged to use loans provided by state-owned banks to purchase unsold properties from distressed developers at significant discounts. Subsequently, many of these properties would undergo transformation into affordable housing units.
These sources indicate that officials are still discussing the details and feasibility of the plan. If the CCP authorities decide to implement this initiative, it may take several months to finalize the ultimate strategy.
During the first four months of this year, China’s housing sales volume has plummeted by approximately 47%, with unsold housing inventory hovering at the highest level in eight years. This has exacerbated the downturn in the Chinese economy and may lead to 5 million people facing unemployment or salary reductions.
On April 30th, the Central Political Bureau of the CCP held a meeting and expressed intentions to explore strategies for dealing with the housing inventory. In the past, the CCP has attempted to use state funds to purchase unsold apartments, but most of these efforts were relatively small in scale and yielded minimal results.
In early 2023, the People’s Bank of China provided 100 billion yuan through a specialized loan mechanism to assist eight cities in piloting the purchase of unsold properties. However, based on the latest quarterly data from the central bank, as of March, only 2 billion yuan had been disbursed under this program, indicating a cautious approach from banks and local governments.
Experts from Bloomberg Economics believe that the CCP’s directive for local governments to purchase housing may not yield sufficient results. The Chinese real estate industry is unlikely to stabilize until the gap between supply and demand narrows.
Official data shows that unsold housing inventory climbed to 3.6 billion square feet last year, the highest since 2016. Tianfeng Securities estimates that the government would need to spend at least 7 trillion yuan (approximately $967 billion) within 18 months to digest this inventory, equivalent to 78% of China’s budget deficit this year.
By the end of last year, the debt levels of local governments had surged to 56% of GDP.
Banks will also face pressure as their balance sheets are burdened by increasing non-performing loans and dwindling profits.
Currently, over 50 cities in China have introduced “old for new” housing policies, encouraging residents to sell old homes and purchase new ones in an effort to stimulate housing demand. However, some analysts believe that due to declining purchasing power among Chinese citizens and excessively high real estate taxes, the impact of these policies may be limited.