In a significant move anticipated by investors, Beijing has launched its most ambitious plan to date aimed at rescuing its struggling property market. Yet, the effectiveness and scope of these measures remain uncertain.
The cornerstone of this new initiative involves a policy already piloted in a major city: local governments will purchase unsold homes from developers and convert them into affordable social housing. The plan also includes reductions in mortgage interest rates and downpayment ratios, as well as a substantial injection of 300 billion yuan ($41.5 billion) in low-cost central bank funding to facilitate state acquisitions of unsold properties.
This announcement, made shortly after an April meeting of the Politburo—China’s top ruling body—highlights the urgency Beijing places on stabilizing the property sector to revitalize growth in the world’s second-largest economy.
“Policymakers understand the critical need to avert a full-blown property crisis,” noted Zhaopeng Xing, senior China strategist at ANZ Research. “The new rescue package underscores their determination to reverse the situation.”
Despite the urgency, experts caution that the current measures might be insufficient in scale and could encounter significant funding challenges.
Goldman Sachs estimates the total value of unsold homes, unfinished projects, and unused land in China at approximately 30 trillion yuan ($4.1 trillion). Reducing the housing supply to levels last seen in 2018, the peak of the real estate boom, could require over 7 trillion yuan ($967 billion) across all cities, a figure that far exceeds the 300 billion yuan announced by the People’s Bank of China (PBOC).
Although China’s economy showed stronger-than-expected growth earlier this year, the vital real estate sector, previously accounting for up to 30% of economic activity, continues to drag down overall performance.
Is the Funding Adequate?
Despite a series of announcements last week indicating decisive action, the details of government purchases remain murky. Critically, it is unclear how local governments, already financially strained, will secure the necessary funds.
On Friday, Tao Ling, deputy governor of the PBOC, mentioned that the relending program could eventually support 500 billion yuan ($69 billion) in bank loans for property acquisitions. However, this amount is likely insufficient to address the vast backlog of empty or unfinished homes across the country.
Ting Lu, chief China economist at Nomura, estimates that merely completing the construction of pre-sold homes would require at least 3.2 trillion yuan ($442 billion), with around 20 million pre-sold homes still unbuilt.
Helen Qiao, chief economist for Greater China at Bank of America, described the funding size of up to 500 billion yuan as “rather underwhelming.” Without significant expansion, the plan is unlikely to substantially reduce the inventory of empty or unfinished homes, she added.
Finding the Necessary Funds
The challenge of securing funding is compounded by the financial strain on local governments. The Housing Ministry suggested that local governments could direct state-owned enterprises to purchase some unsold homes from developers. However, local government financing vehicles (LGFVs), already burdened with substantial hidden debt, are prohibited from making these purchases, leaving limited options for securing funds.
Chinese cities have accumulated approximately $15 trillion in debt, much of it hidden, due to extensive borrowing for pandemic-related expenditures and infrastructure projects. The property market slump has exacerbated their financial troubles, as land sales—typically accounting for over 40% of local government revenue—have sharply declined. This financial distress has forced many cities to cut spending, even suspending essential services like heating homes in winter.
Jing Liu and Taylor Wang, China economists at HSBC, expressed concerns about adding more debt to already heavily leveraged local governments in a recent note.
China’s property sector began to cool in 2019, plunging into a deep crisis about three years ago following a government crackdown on developers’ borrowing. Early policy efforts to rescue the market in 2022 proved largely ineffective, leading to deteriorating cash flows among developers. The recent troubles of Vanke, a major real estate firm, illustrate the pervasive risks in the industry.
Addressing Broader Issues
Experts agree that addressing the oversupply of unsold homes is just the initial step. According to Goldman analysts, the government must also bail out developers and help them complete pre-sold but unfinished homes to maintain social stability and prevent further declines in new home sales.
Additionally, boosting housing demand and mitigating the contraction in property construction will require detailed measures to revive consumer confidence and increase housing prices.
The external environment poses further challenges. Recently, the US government announced new tariffs on China, with similar actions potentially following from the European Union. Former President Donald Trump has threatened even harsher tariffs if re-elected, which could cut China’s growth rate by as much as 0.9%, according to Xing.
“The rescue is not a game-changer for housing in lower-tier cities, which will likely remain depressed,” stated Michelle Lam and Wei Yao, China economists at Société Générale, in a research note. They emphasized that the rescue plan needs expansion and more detailed policies to be effective.
Nevertheless, Beijing’s bold initiative could help stabilize expectations and prevent China from slipping into a “deflationary spiral” similar to Japan’s, a situation where delayed and insufficient policy responses proved costly. “This might be the beginning of the end of China’s housing crisis,” they concluded.
