China Mulls a Massive Plan to Buy Unsold Homes and Salvage Property Markets

Reports indicate that China is contemplating a bold proposal to address its struggling property market by having local governments purchase millions of unsold homes. This initiative, if implemented, would mark one of the country's most ambitious efforts to revitalise the real estate sector.

The State Council is reportedly seeking input on the preliminary plan from various provinces and government entities. Under the proposal, state banks would provide loans to local state-owned enterprises tasked with acquiring unsold homes from distressed developers at significant discounts. State banks would then convert these properties into affordable housing units.

Analysts suggest that such a plan could require substantial funding, potentially in the range of 1-2 trillion yuan, despite the ongoing debate over details. Despite the need for financial investment, experts see this as a win-win situation, providing liquidity to developers, improving their financial stability, and addressing excess housing inventory.

Investors have been eagerly awaiting government action following the recent pledge by the Communist Party to explore new approaches to alleviate the real estate crisis. News of the proposed plan has already had a positive impact on the CSI 300 Real Estate Index and currency markets.

While China has experimented with similar initiatives, smaller-scale efforts have seen limited success. The success of this new proposal will depend on its implementation and its ability to address the underlying supply-demand imbalance in the property market.

However, challenges remain, including the potential impact on local government debt levels and the strain on banks already facing rising bad loans. Despite these hurdles, addressing the housing glut is crucial for stabilising the property sector and supporting economic growth.