Beijing, China – October 16, 2024 – To effectively address the challenges facing China’s struggling real estate market, economists and policy advisers are calling for significant central government funding and innovative strategies, including the establishment of a special institution to acquire idle housing inventory.
Gong Liutang, a professor at Peking University’s Guanghua School of Management, emphasized the need for a dedicated fund, supported by central government resources, to purchase excess housing. This initiative could help alleviate barriers to housing acquisition, particularly in regions where local governments are burdened by debt. “A detailed plan should be made public as soon as possible to stabilize expectations,” he noted.
Zhang Ming, deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, echoed these sentiments, arguing that the central government’s robust balance sheet could effectively address local government debt risks. He proposed creating a national institution, financed through special treasury bonds, tasked with acquiring idle commercial housing in smaller cities. This institution would focus on purchasing properties in second- and third-tier cities experiencing population growth, converting them into government-subsidized rental housing.
The Ministry of Housing and Urban-Rural Development, alongside the Ministry of Finance and the People’s Bank of China, is scheduled to hold a news conference on Thursday to discuss measures for promoting stable development in the real estate sector. Recently, the Ministry of Finance announced plans to allow local government special bonds to be utilized for purchasing housing inventory aimed at social housing.
Earlier this year, the central bank introduced a relending program of 300 billion yuan ($42.14 billion) to support this initiative. However, analysts have noted that the uptake of this program has been slow, hindered by high funding costs, local government debt issues, and a pricing bias against private developers.
Data from UBS indicates that as of July, there were approximately 19 million residential units available for sale but unsold. UBS analysts suggest that efforts to destock should prioritize higher-tier cities, estimating a total cost of around 3 trillion yuan to normalize the inventory-to-sales ratio in 80 major cities.
Wang Tao, chief China economist at UBS Investment Bank, stated that while local government special bonds could provide 800 billion to 1.2 trillion yuan annually for property destocking, significant implementation challenges remain. He highlighted that the cost of issuing these bonds exceeds the rental yields from social housing, and proposed destocking prices are still lower than current market prices.
Further policy adjustments are necessary to enhance the effectiveness of the destocking program and stabilize the housing market, Wang asserted. Similarly, Wang Yiming, vice-chairman of the China Center for International Economic Exchanges, suggested that a special fund, financed by fiscal resources, could effectively acquire housing stock and convert it into government-subsidized rentals for new urban residents.
As the government prepares to address these pressing issues, the proposed measures could be pivotal in revitalizing the real estate market and ensuring sustainable urban development in China.