In an attempt to stabilize its troubled property market, China has launched a series of new support measures to address the sector’s escalating crisis. These recent initiatives, announced by the Ministry of Housing and Urban-Rural Development at a State Council press conference, signal a shift in approach, emphasizing the sale of fully finished homes and providing new financial lifelines for developers.
A central component of Beijing’s new strategy is the nationwide expansion of a policy first piloted in Zhengzhou, which mandates the sale of completed homes. This marks a departure from the longstanding practice of pre-selling unfinished properties. The aim is to restore buyer trust – a trust that has been eroded by years of project delays and developer defaults. Deputy Housing Minister Dong Jianguo’s assertion of a “vigorous and orderly” expansion of finished home sales highlights the government’s determination to stabilize the sector.
Complementing this approach is a proposal allowing local governments to issue special bonds for purchasing unsold properties. This dual-pronged strategy seeks to address both supply and demand issues. By converting excess inventory into affordable housing, authorities hope to alleviate developers’ financial strains while simultaneously addressing the housing needs of low-income groups.
Xi Jinping’s recent announcement of sweeping goals to strengthen the financial stability of China’s heavily indebted local governments and grant them greater autonomy in managing property markets has sparked speculation about potential new strategies. The ruling Communist Party has announced its commitment to accelerating the development of a housing model that prioritizes renting, alongside expanding the construction of affordable housing to address the needs of the working class. However, the specifics of these initiatives remain unclear.
As China unveils these latest efforts to rejuvenate its ailing property sector, doubts linger. Experts suggest that in a market beset by oversupply, dwindling demand, and a pervasive lack of confidence, these measures might prove to be yet another futile attempt to stem the bleeding.
While these new support measures represent a more comprehensive approach to tackling the property market crisis, questions about their effectiveness persist. A key difference between these policies and previous attempts lies in the emphasis on selling fully completed homes. This shift is likely to be welcomed by buyers who have become increasingly disillusioned with the frequent delays and defaults that plagued the prior model of pre-construction sales. By ensuring that homes are completed before they are sold, the government aims to restore trust in the market and stimulate transactional activity.
However, this policy also introduces significant new challenges. For developers already grappling with cash flow issues, the requirement to complete homes before initiating sales could further strain their financial resources. Although the government has introduced measures to facilitate access to financing for these developers, the sheer scale of the funding required to complete the vast number of unfinished projects across the country is daunting. The success of this policy depends on the government’s ability to ensure that developers can secure the necessary funds without exacerbating their financial instability.
The proposal to allow local governments to issue special bonds to fund the purchase of unsold homes is another crucial aspect of the new strategy. The success of this policy will depend on whether local governments can issue these bonds at a sustainable cost. If the costs associated with these bonds exceed the returns generated by the properties they finance, local governments may find themselves burdened with even more debt.
Another concern is whether these new policies will be sufficient to revive demand in the property market. While the focus on completed homes and the introduction of new financial mechanisms are steps in the right direction, they fail to address the underlying issue of weak demand. Despite the government’s efforts, home sales continue to decline, forcing many developers to offer substantial discounts to attract buyers. This has created a vicious cycle where falling prices further erode buyer confidence, leading to even lower sales and prices.
Moreover, the ongoing liquidity crunch among developers remains a significant risk. Even with the introduction of new financing mechanisms, many developers are still struggling to secure the necessary funds to complete their projects. The whitelist policy, which was intended to provide these developers with easier access to loans, has been hampered by the banks’ reluctance to lend to projects in a depressed market. As a result, many projects remain stalled, further contributing to the oversupply of unsold homes.
The government’s approach also highlights a more systemic issue: the growing disconnect between policy formulation and implementation. This gap between Beijing’s ambitious directives and the realities on the ground has become a recurring theme in China’s economic governance. Local officials, already under significant debt pressure and caught between conflicting mandates to support the property market while curbing speculation, often resort to half-measures that fail to achieve either goal. This persistent misalignment raises questions about the long-term viability of the government’s efforts to stabilize the property market and restore confidence among investors and buyers alike.
As one Chinese policy adviser, who wished to remain anonymous, commented, the latest property rescue plan is akin to “applying a band-aid to a gaping wound.” While it demonstrates the government’s recognition of the crisis’ severity and may provide temporary relief, it fails to address the fundamental imbalances that have brought the sector to its knees. Without a more fundamental rethink of the role property plays in China’s economy and society, these efforts are likely to join the growing list of well-intentioned but ultimately ineffective interventions.
The question now is not whether these measures will solve the crisis, but how long Beijing can continue to prop up a sector that has become both the engine and the albatross of the Chinese economy.