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China pledges to buy apartments and finish stalled housing projects

China pledges to buy apartments and finish stalled housing projects
A man rides a scooter past apartment highrises that are under construction near the new stadium in Zhengzhou, Henan province, China, Jan 19, 2019.
PHOTO: Reuters file

BEIJING/HONG KONG — China on Friday (May 17) announced some of its most sweeping measures yet to stabilise the crisis-hit property sector, allowing local governments to buy "some" apartments, relaxing mortgage rules and pledging further efforts to deliver unfinished homes.

Earlier in the day, fresh data showing the fastest drop in new home prices in more than nine years highlighted the worsening state of an industry which at its peak accounted for a fifth of economic activity and remains a major drag on confidence and growth.

After waves of support measures over the past two years failed to turn around the sector, Vice Premier He Lifeng told an online meeting with other authorities that municipal governments can buy homes at "reasonable" prices.

The homes would be used to provide affordable housing, He said, without giving a timeline or a target for the purchases, nor detailing how they would be funded. He also said local governments, already some US$9 trillion (S$12 trillion) in debt, can repurchase land sold to developers, and promised that authorities will "fight hard" to complete stalled projects.

Separately, the central bank said it would further lower mortgage interest rates and downpayment requirements.

China's CSI 300 Real Estate index jumped more than four per cent on the announcements.

"It's a positive and encouraging direction, that the governments are stepping in to buy housing inventory," said Macquarie chief China economist Larry Hu.

"But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they'll fund in the end."

The move to allow local governments to buy homes is aimed at bringing down a growing stock of unsold apartments.

Goldman Sachs estimates saleable housing inventory at 13.5 trillion yuan (S$2.51 trillion) at the end of 2023 and because some of their construction had not been finished, it would require 5 trillion yuan of capital investment to complete them.

"The policies on clearing inventory are considered quite powerful compared to all previous ones," said a senior executive at a defaulted Shanghai-based developer, speaking on condition of anonymity due to the sensitive nature of the topic.

"Psychologically, it'd let investors think the government is 'paying the bill', and it is shifting the risks from property to banks and local governments."

Poor data

Since the property market soured in 2021, triggering a series of defaults among developers, China has lowered interest rates and down payments, while most cities have eased or removed prior purchase restrictions.

A whitelist developer funding programme for project completion is also struggling to get traction.

And a campaign flagged by Chinese authorities at a key political meeting last month to encourage people to replace their old apartments with new ones is off to a poor start as buying interest in second-hand homes remains tepid.


The upbeat mood in the stock market contrasted with the harsh reality on the ground, highlighted by poor housing data on Friday and a Hong Kong court hearing of a petition seeking the liquidation of embattled developer Country Garden.

The hearing was adjourned for June 11. Another major developer, China Evergrande Group was ordered to be liquidated in January.

New home prices fell for a tenth consecutive month by 0.6 per cent month-on-month in April, which was worse than a 0.3 per cent fall in March and the fastest decline since November 2014.

A separate data set showed property investment in the first four months of 2024 falling 9.8 per cent from a year earlier.

Property sales by floor area in January-April logged a 20.2 per cent slide year-on-year, while new construction starts fell 24.6 per cent. Funds raised by developers were also down 24.9 per cent year-on-year.

Of the 70 cities monitored for the housing data, 64 reported declines in prices last month, more than the 57 cities that did so in March.

"The continued decline in property prices will intensify the wait-and-see sentiment" among would-be buyers, said Guan Xuerong, senior analyst at Zhuge Real Estate Data Research Centre.

"The industry adjustment is not yet over. It will take time for the market to recover."

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