China’s growing policy support lifts expectations for real estate sector

SOURCE / ECONOMY
China’s growing policy support lifts expectations for real estate sector
Cities step up efforts to reduce housing inventory levels, boost market
By

Wang Cong co-leads GT’s business desk. He covers China’s macroeconomic policies and global trade.

Wang Cong

and Zhang Yiyi Published: May 16, 2024 09:25 PM

real estate Photo:Xinhua

real estate Photo:Xinhua

Market expectations for China’s real estate industry have significantly improved, with the shares of major developers skyrocketing on Thursday, as Chinese cities step up policy efforts to reduce inventory levels and boost market activity, including plans by some cities to purchase unsold homes to be used in affordable housing programs.

Coming after a top meeting at the end of April, the growing list of policy measures adopted by various localities will help tackle challenges in the housing market, including developers’ financing problems and disruptions in delivering homes, and inject much-needed vitality into one of the crucial sectors of the Chinese economy, experts said. 

In a remarkable turn of events, share prices of major Chinese real estate developers, which had been in an extended slump, skyrocketed on Thursday. The Hang Seng Mainland Properties Index, which tracks Chinese property developers listed in Hong Kong, surged by nearly 5 percent on Thursday. Sino-Ocean Group Holding’s shares jumped by more than 46 percent, while those of CIFI Holdings (Group) Co gained nearly 29 percent. 

The gains followed multiple news reports of major policy moves to revitalize the real estate sector. Notably, a Bloomberg report on Wednesday said that Chinese policymakers were mulling a proposal to have local governments buy millions of unsold homes, “in what would be one of its most ambitious attempts yet” to clear excess housing inventory. 

While there was no official confirmation of the Bloomberg report as of press time on Thursday, announcements of similar plans made by some localities this week drew widespread attention.

On Tuesday, the Housing and Urban-Rural Development Bureau of Lin’an district in Hangzhou, East China’s Zhejiang Province announced that it would buy housing units totaling no more than 10,000 square meters and turn them into public rental housing.
 
While the announcement by Lin’an drew great attention, there have been similar plans in other parts of China. In April, a district in the city of Shaoxing, also in Zhejiang, made a similar announcement. Other cities implemented similar moves as early as 2022, according to news outlet thepaper.cn.

Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, said that while there have been various trials in different places where local governments purchased unsold homes to use them in affordable housing programs, the move by Lin’an carries extra significance, not least the timing of the announcement. 

“The Political Bureau meeting stressed the reduction of inventory… and this is implementing the spirit of the meeting. In this perspective, this is a very important policy shift,” Yan told the Global Times on Thursday, noting that the move could send a very strong policy signal and provide strong confidence for localities to reduce inventory levels.

A meeting of the Political Bureau of Communist Party of China Central Committee on April 30 demanded research on policies to reduce housing inventory levels and improve the quality of newly added housing, noting that efforts should be pursued to establish a new model of the real estate sector to promote its high-quality development.

Chinese localities have moved swiftly to reduce inventory levels, with a growing list of measures, including lifting long-existing restrictions on home purchases in some major cities such as Hangzhou and Xi’an in Northwest China’s Shaanxi Province.

Many cities also announced trade-in programs to encourage homeowners to trade their old homes for new ones, in an effort to boost sales. 

Yan said that the move in Lin’an could be followed by other cities, as it represents another major policy innovation in the real estate industry, after the trade-in promotions. “Such policies will have great effects and deserve special attention,” he said. 

Moreover, the combination of policies from different levels of government will help tackle challenges in the housing market and promote high-quality development in the industry, which will offer a huge boost for China’s overall economic recovery, experts said. 

“The purchase of commercial housing for public rental housing, in my view, could solve both funding problems and destocking problems. It is a logically better approach,” Song Ding, a research fellow at the China Development Institute, told the Global Times on Thursday. 

Song said that the plan would effectively help address huge debt pressures faced by developers, which in turn would ensure the delivery of homes to buyers and solve other related issues. 

“This approach will help resurrect an entire economic chain that has been stuck,” he said, adding that this will offer a huge boost for the economic recovery.