China Pursues Dramatic Real Estate Reforms
Following on from our Daily yesterday, we heard that China is considering resolving the ailing property crisis. This news follows the Politburo meeting at the end of April, where for the first time, since mid-2016, the issue of the real estate sector was discussed. According to reports, China is considering an unprecedented proposal for local governments nationwide to purchase millions of unsold homes from struggling developers at steep discounts. The large-scale plan would have local state-owned enterprises leverage loans from state banks to buy up the excess housing inventory, with many units then converted into affordable housing. While smaller pilot buyback programs have been in the works, this would be a much more ambitious effort to revive the nation’s property market.
The nationwide home buying scheme represents a new phase in the government's campaign to address the severe real estate downturn weighing on the economy. Home sales plunged around 47% in the first four months of 2023, while unsold housing inventory hovers at an eight-year high, putting millions at risk of job losses. Analysts estimate at least CNY 2tn ($277 billion) in funding would be needed to make a meaningful dent in the housing glut. Authorities hope injecting liquidity directly to developers by clearing inventory will be a "win-win," though concerns linger about further indebting local governments and banks.
Furthermore, in a striking reversal, major cities are now rapidly dismantling once-strict home purchase restrictions aimed at deterring property speculation. Hangzhou, Xi'an and others have removed all curbs, opening their markets to any buyers, whether for "self-use" or "speculation." Even Beijing and Shanghai have begun relaxing measures, signalling the eventual end of such policies.
For nearly 20 years, China's housing policies centred on sophisticated eligibility systems to separate “speculators” from qualified buyers proving genuine need based on residence, mortgage, and property records. However, these purchase curbs largely failed to rein in rising prices, while limited land supply only fuelled buying frenzies. With the market now plagued by too few buyers, cities are lifting restrictions to attract fresh demand.
Xi Jinping's administration is clearly seeking an overhaul of China's real estate sector towards a more sustainable model, but the reforms being enacted will need to go further and be truly meaningful and direct to achieve this goal. While this reactionary policy shift may revive the housing market in the short-term, developing a truly healthy property sector in the long-term will likely require more comprehensive and direct overhauls.
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