Reacting to the reports about China considering a plan for local governments nationwide to buy millions of unsold homes from distressed companies to ease a protracted property crisis, shares of property developers have soared.
The Hong Kong Stock Exchange’s Hang Seng Mainland Properties Index increased by up to 6%. The government-backed Sino-Ocean Group increased by more than 50%, while private developers CIFI Holdings and Shimao Group experienced a more than 30% increase. China’s CSI 300 Real Estate index increased by more than 3% after the news broke out.
According to Bloomberg News, the State Council is seeking input on the draft plan from different government agencies and provinces. This comes after a meeting of the leaders of the ruling Communist Party in late April demanded that steps be taken to address the growing housing stock.
The report stated that many of these homes would be converted into affordable housing and that local state-owned businesses would be asked to assist in buying unsold homes from distressed developers at steep discounts using loans provided by state banks.
In mid-2021, China’s real estate industry fell victim to a debt crisis. The industry, which accounts for about 5% of the GDP and continues to be a significant barrier to consumer confidence and spending, has not improved since 2022 despite numerous attempts at policy changes.
Policy Ramp-Up
A few local governments have already made plans public in recent years to purchase unsold or incomplete homes from developers and convert them to social housing.
In recent weeks, authorities have also strengthened their efforts to reduce the inventory of unsold homes. Homebuyers can now “swap” to a new home from an old one in some major cities like Beijing and Shenzhen, where restrictions on home purchases have been loosened.
“We believe there is limited further action that the local governments can take on their own to support the property sector. It now comes to the central government to introduce meaningful measures for the property sector,” Nomura said in a report.
In addition to helping to address the inventory problem, governments’ ability to purchase a sizable number of unsold homes from developers will also direct funding flows toward the credit-trapped private enterprises, according to Nomura.
It further stated that this would help to stabilise the construction industry and stop its downward trend.