Analysis: China Tests Whether State Purchases Can Lift Housing Market

China has initiated a major effort to rejuvenate its property market through a dual approach of boosting home sales and reducing surplus units. Key measures include the removal of the nationwide minimum mortgage rate and a reduction in the minimum down-payment ratio, aimed particularly at larger cities [para. 1][para. 2].

Additionally, the central government has introduced 300 billion yuan ($41.6 billion) in low-interest loans to help local authorities purchase unsold homes and transform them into affordable housing [para. 3][para. 4]. Market experts are closely watching the effectiveness of these policies, which will depend on various factors such as local implementation, negotiations between local governments and real estate firms, and public acceptance of subsidized housing [para. 5][para. 6].

Efforts to de-stock the housing market are evident in the central bank's pledge of 300 billion yuan in affordable loans to enable financial institutions to lend to state-owned enterprises (SOEs). These SOEs are tasked with purchasing unsold apartments and converting them into affordable housing for resale or lease [para. 7]. The loans, carrying a 1.75% interest rate extendable up to four times, will be disbursed to 21 banks, releasing an estimated 500 billion yuan in financing to the SOEs [para. 8]. This policy aims to address the record 748 million square meters of unsold homes as of March, a significant threat to developers' liquidity [para. 9].

Some cities have already begun exploring methods to utilize these unsold homes for affordable rental housing or trade-in programs for homeowners upgrading their residences. For instance, state-owned enterprises in Zhengzhou and Zhangzhou have initiated such programs [para. 10]. Completed properties acquired under the new plan must meet certain standards for affordable housing and will be restricted to unsold stock from various real estate enterprises [para. 11][para. 12].

Policymakers are emphasizing quick turnover of these acquired homes to reduce inventory and improve living conditions, with flexibility granted to local authorities based on their specific market conditions [para. 13][para. 14]. The success of these initiatives will depend heavily on public acceptance and effective pricing, rental, and sale allocation mechanisms for the subsidized housing [para. 20].

China’s history with affordable housing dates back to the early 1990s, but the proportion of low-cost residential units has been minimal despite a booming housing market. Affordable residences account for roughly 13% of the housing supply, with less than 10% of urban households benefiting from economical housing by 2020 [para. 21]. Increasing this supply has become a recent policy focus, with the State Council approving plans to accelerate affordable housing development in major cities [para. 22]. However, detailed plans remain pending as further studies on local demographics and demand structures are required [para. 23][para. 24].

Financial sustainability for subsidized rental housing is crucial. The market is observing the extent of ongoing fiscal support, given the pilot loan program initiated in January 2023, which allocated 100 billion yuan for rental housing in cities like Chongqing and Zhengzhou. This program includes subsidies and tax incentives to lower the operating costs for participating companies [para. 25]. Balancing operating costs, vacancy rates, and rental yields is vital for making these initiatives viable, necessitating enhanced management and financial backing [para. 27][para. 28].