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Chinese Government Steps in as Buyer of Last Resort Amidst Housing Crisis

Amid a persistent housing crisis, the Chinese government has taken a decisive step by unveiling a national plan to purchase unsold housing stock and easing mortgage rules. This bold move, announced on Friday, includes a $41.5 billion provision from the central bank for state-owned enterprises to acquire properties that have been built but remain unsold.

The urgency of this intervention became evident following new economic data indicating a steep decline in home purchases. Despite numerous attempts by policymakers to rejuvenate the property market, demand remains sluggish.

During a video conference with national authorities, Vice Premier He Lifeng revealed a significant policy shift. He announced that local governments would start purchasing empty homes to mitigate the surplus of unsold properties, marking a substantial change in strategy. This move is expected to stimulate the market and address the challenges posed by a vast inventory of unsold apartments.

The government’s plan is akin to the U.S. Troubled Asset Relief Program (TARP) from 2008, designed to stabilize the housing market by buying troubled assets. Local governments in cities like Jinan, Tianjin, Qingdao, and Chengdu have already been experimenting with this approach, but this is the first time it has been acknowledged at a national level.

Vice Premier He emphasized the need to address the unfinished properties scattered across the country. According to official data, the real estate market faces significant challenges with record-high inventories and rapidly declining property prices. As of March, the unsold housing inventory was over eight billion square feet, with new home prices in 70 cities falling 3.5 percent year-on-year in April and existing home prices dropping 6.8 percent.

In response to these alarming figures, the central bank has taken measures to boost home purchases by reducing down payment requirements and eliminating a nationwide mortgage interest rate. These steps aim to make home buying more accessible and stimulate market activity.

China’s leaders are striving for about 5 percent economic growth this year, a target that many economists consider ambitious. Achieving this goal will likely require significant government spending. In line with this, China raised $5.5 billion from its first sale of 30-year bonds, part of a broader effort to generate $140 billion over the next six months.

The housing crisis stems from years of overbuilding and heavy borrowing by property developers, which fueled China’s rapid economic growth. The government’s intervention in 2020 to curb risky practices led to a cascade of defaults among major developers, including the high-profile collapse of China Evergrande in late 2021. This default left numerous unfinished projects and massive unpaid debts, severely impacting the industry.

The crisis has had profound implications for Chinese families who traditionally invested heavily in property. With limited alternative investment options, the volatile stock market offers little reassurance.

Evergrande’s collapse marked the beginning of a series of defaults in the real estate sector. A Hong Kong court ordered its liquidation in January, and another major developer, Country Garden, faced its first liquidation hearing in Hong Kong on Friday.

As the Chinese government steps in to stabilize the housing market, the success of these measures remains to be seen. The nationwide plan to purchase unsold properties and the easing of mortgage rules are critical steps in addressing the crisis, but long-term recovery will depend on sustained efforts and broader economic conditions.