In a real estate crisis that seems to have no end, the Chinese government is stepping in as a buyer of last resort.
Chinese authorities took their boldest step on Friday, unveiling a national plan to buy part of the vast housing stock languishing on the market. They also loosened the rules for mortgages.
The flurry of activity came just hours after new economic data revealed a hard truth: Nobody wants to buy houses right now.
Policymakers have tried dozens of measures to attract homebuyers and reverse a sharp decline in the housing market that has shown few signs of recovering soon.
On Friday, officials from across China called into a video conference to discuss the challenges they faced. China’s Vice Premier He Lifeng announced a dramatic change in the government’s approach to dealing with the housing crisis, which has prompted households to cut spending. He said local governments could start purchasing homes to begin dealing with the large number of empty apartments.
The homes purchased by the government would then be used to provide affordable housing. Mr. He did not provide any details about when such a program would begin or how it would be funded.
The approach is similar to the Troubled Asset Relief Program, or TARP, which the U.S. government created in 2008 to buy troubled assets after the collapse of the U.S. housing market, said Larry Hu, chief China economist at Macquarie Group, a Australian financial. .
“It’s a change in policy in the sense that now local governments are entering the market to buy properties directly,” Hu said.
Some local governments have already quietly tested 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 it at the national level.
Addressing authorities on Friday, He said they would have to “fight the tough battle” of dealing with all unfinished properties across the country, according to an official report by Chinese state media outlet Xinhua.
The People’s Bank of China said on Friday it would create a program to provide $41.5 billion in cheap loans to help local state-owned enterprises buy housing that has already been built but not yet sold.
Official government data shows that Beijing has a long way to go in boosting confidence in the property market. The number of unsold homes has reached a record high and property prices are falling at a record pace.
The inventory of unsold homes was equivalent to 748 million square meters, or more than 8 billion square feet, in March, according to China’s National Bureau of Statistics. In April, new home prices in 70 cities fell 3.5% compared to the previous year, while existing home prices fell 6.8%, both record declines.
Hours after house price figures were released on Friday, China’s central bank took steps to encourage home purchases by reducing requirements on down payments. It also eliminated a nationwide mortgage interest rate.
“Policymakers are desperate to increase sales,” said Rosealea Yao, a real estate expert at Gavekal, a China-focused research firm. The central bank has been reducing mortgage rates for several years and the average rate before this measure was already at a historic low.
China’s leaders have set an economic growth target of about 5% 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 raised $5.5 billion from its first 30-year bond sale as part of a broader scheme to raise $140 billion over the next six months.
China’s housing crisis was fueled by years of heavy borrowing by property developers and the overbuilding that underpinned much of the country’s remarkable decades-long run of rapid economic growth.
But when the government finally intervened in 2020 to put an end to promoters’ risky practices, many companies were already on the brink of collapse. One of its biggest property developers, China Evergrande, defaulted at the end of 2021 due to huge piles of debt. It left behind hundreds of thousands of unfinished apartments and unpaid bills worth hundreds of billions of dollars.
The housing crisis has left many Chinese families, who once invested their savings in property, without viable alternatives for building wealth. They have few other good options, as China’s stock market, although it has recovered in recent months, remains volatile.
Evergrande was the first in a series of high-profile defaults that now dot the sector. A Hong Kong court ordered the company’s liquidation in January. Another beleaguered property giant, Country Garden, had its first hearing on Friday in a Hong Kong court in a case brought by an investor seeking liquidation of the company.
Zixu Wang contributed research from Hong Kong.