In the endless housing crisis, the Chinese government is stepping in as the buyer of last resort.
Chinese officials on Friday took their boldest step yet, unveiling a nationwide plan to buy up some of the massive housing market struggling. They also relaxed mortgage rules. The central bank said it would provide $41.5 billion in cheap loans to help state-owned companies buy housing that has been built but is not being sold.
The flurry of activity came just hours after new economic data revealed a harsh truth: No one wants to buy homes right now.
Policymakers have tried dozens of measures to attract homebuyers and reverse the sharp decline in a real estate market that shows little sign of recovery soon.
On Friday, authorities from across China called in via video conference to discuss the challenges they faced. Chinese Vice Premier He Leveng announced a radical shift in the government’s approach to dealing with the real estate crisis, which prompted families to reduce spending. Mr. He said local governments could start buying up homes to begin dealing with the huge numbers of empty apartments.
The homes purchased by the government will then be used to provide affordable housing. Mr. He did not provide any details about when such a program would start or how it would be funded.
This approach is similar to the Troubled Asset Relief Program, or TARP, which the US government created in 2008 to buy distressed assets after the US housing market collapsed, said Larry Hu, chief China economist at Macquarie Group, an Australian financial firm. .
“It is a policy shift in the sense that local governments are now entering the market to buy properties directly,” he added. He said.
Some local governments have already begun quietly testing this approach in cities such as Jinan, Tianjin and Qingdao along China’s coast, and Chengdu in the south, but this is the first time a senior Chinese official has said anything about this on the national stage.
In his speech to officials today, Friday, Dr. He said they had to “fight a tough battle” to deal with all the unfinished properties across the country, according to an official account from Chinese state media outlet Xinhua.
Official government data show that Beijing has a long way to go to increase confidence in the real estate market. The amount of unsold homes has reached a record high, and real estate prices are falling at a record pace.
The inventory of unsold homes amounted to 748 million square meters, or more than 8 billion square feet, as of March, according to China’s National Bureau of Statistics. In April, new home prices in 70 cities fell 3.5 percent from a year ago, while existing home prices fell 6.8 percent, both record lows.
Hours after the house price figures were released on Friday, China’s central bank took steps to encourage home buying by lowering down payment requirements. It also eliminated the nationwide mortgage interest rate.
“Decision makers are desperate to boost sales,” said Rosalia Yao, a real estate expert at Gavical, a China-focused research firm. The central bank has been lowering mortgage interest rates for several years, and the average rate before the move was already at a record low.
China’s leaders have set a goal of achieving economic growth of about 5 percent this year, a plan that many independent economists believe is ambitious and will require aggressive government spending.
To that end, China also said on Friday that it had raised $5.5 billion from its maiden sale of 30-year bonds as part of a broader plan to raise $140 billion over the next six months.
China’s real estate crisis was fueled by years of excessive borrowing by real estate developers and overbuilding, fueling much of the astonishingly rapid economic growth the country has experienced over decades.
But when the government finally stepped in in 2020 to put an end to risky practices by developers, many companies were already on the brink of collapse. China Evergrande, one of its largest real estate developers, defaulted in late 2021 under the weight of huge piles of debt. It left behind hundreds of thousands of unfinished apartments and unpaid bills worth hundreds of billions of dollars.
The real estate crisis has left many Chinese families, who had been investing their savings in real estate, without viable alternatives for building wealth. They have few other good options because the Chinese stock market, although recovering in recent months, remains volatile.
Evergrande was the first in a series of high-profile defaults that are now punctuating the industry. A Hong Kong court ordered the company to be liquidated in January. Another real estate giant, Country Garden, held its first hearing on Friday in a Hong Kong court in a case brought by an investor seeking to liquidate the company.
Zexu Wang Research was contributed from Hong Kong.
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