China's Housing Rescue Plan Faces Challenges
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Loading... - Runchu Zhang
- 11 Sep 2024
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China's central government's plan to rescue the housing market by urging cities to buy unsold homes is facing significant challenges, with only 29 out of over 200 cities implementing the plan. The slow progress is attributed to the unattractive economics of the plan for local governments.
Buying apartments at current prices makes little financial sense for local governments, as prices are expected to drop further. Estimated returns from turning inventory into affordable housing are below the cost of funding. Local governments are also wary of taking on risks, including socio-political repercussions for local homeowners.
Regional governments' ability to spur growth has been undermined by a record drop in income from land sales, with their budget spending shrinking. This lack of funding is a major obstacle to the plan's implementation.
Some cities are proposing to resort to heavy bargaining to minimize their risks, but this may not be acceptable to distressed developers. China is considering letting local governments use special loans to purchase excess residential units, which could provide access to up to 1.6 trillion yuan of funding. Additionally, some cities are easing their purchasing requirements to expand the pool of potential targets.
The slow progress of China's housing rescue plan highlights the challenges the government faces in addressing the country's record property slump. The plan's unattractive economics, risks, and funding concerns are major obstacles to its implementation. To address these issues, the government may need to consider more forceful measures, such as providing additional funding or relaxing rules to make the plan more appealing to local governments.
