Caixin Explains: What’s in China’s Policy Toolbox to Tackle the Ballooning Housing Stocks

China is grappling with a severe property market crisis, characterized by record-high housing inventories and declining sales and prices. As of March, unsold homes spanned 748 million square meters, the highest ever recorded by the National Bureau of Statistics [para. 1][para. 2]. This enormous stockpile is exacerbating liquidity issues for developers, prompting the government to urgently address the problem [para. 3][para. 4].

In April, the Politburo highlighted the inventory issue and indicated measures such as “trade-in” programs and converting unfinished buildings into affordable housing to stimulate sales [para. 4][para. 5]. Policymakers might also create a national real estate investment vehicle to buy and revitalize unfinished properties [para. 6]. This situation mirrors a previous slowdown in 2016 when government policies successfully reduced inventories from 739 million square meters in February 2016 to 492 million square meters by November 2019 [para. 7].

Despite more than 70 central and 300 local government measures to counter the downturn in early 2023, the slump persists [para. 8][para. 9]. The government is expected to introduce further measures that could potentially have historic impacts on the industry [para. 10]. However, challenging market conditions make this difficult [para. 11].

As of March, the inventory absorption period in China’s top 100 cities stood at 25.3 months, more than double the historical range of 12-14 months. For 41 cities, it exceeded 36 months, with cities like Shaoguan in Guangdong needing up to 12 years to sell existing homes [para. 12][para. 13]. Additionally, home sales have significantly declined, with the top 100 property companies seeing a 45% year-on-year drop in new-home sales in April [para. 14].

To tackle the issue, the Ministry of Natural Resources (MNR) urged local authorities to limit land sales for new residential development. Despite a 30% decrease in the number of cities planning to add land supply in 2023, planned sales still seem excessive [para. 15]. Cities have also eased home purchase restrictions and introduced state-led acquisitions and "trade-in" programs to encourage sales and conversions to subsidized housing [para. 16][para. 18].

The “trade-in” program encourages homeowners to sell and upgrade their homes, but its success hinges on whether the old houses can be sold, a challenge in smaller cities with a severe oversupply of new homes [para. 19][para. 20]. Another strategy involves government-led purchases to build reserves for subsidized housing, supported by a 100 billion yuan pilot loan program initiated by the People’s Bank of China in January 2023 [para. 21]. However, funding these state-led purchases is a major concern given the fiscal pressures on local authorities [para. 24].

The industry is also looking to the central government for more substantial intervention. Proposals for a national real estate investment vehicle to acquire and revitalize unfinished properties signal this shift, though this requires extensive funding and poses numerous challenges, including acquisition management and moral hazards [para. 26][para. 30].

In summary, China’s property market faces a complex and severe crisis of high inventories and declining sales. While the government has implemented numerous measures and is considering more to stabilize the situation, significant challenges remain, particularly concerning funding and market absorption capacities.