China announced "historic" steps to stabilize its crisis-hit property sector, with the central bank facilitating 1 trillion yuan ($138 billion) in extra funding and easing mortgage rules, and local governments set to buy "some" apartments.
Investors hoped the measures marked the beginning of more decisive government intervention to compensate for waning demand for new and old apartments, to slow down falling prices and to reduce a growing stock of unsold homes.
Analysts have long called for the government to step in with its own purchases to prop up a sector which at its peak accounted for a fifth of GDP and remains a major drag on the world's second-biggest economy.
Since the property market began its steep downturn in 2021, a string of developers have defaulted, leaving scores of idle construction sites behind, and sapping confidence in what had for decades been the preferred savings instrument for the Chinese population.
The biggest problem is whether the government purchase programme will induce private sector demand. Clearing inventory will increase cashflow to developers and help their financial stability, but it does not address private sector confidence.
After waves of support measures over the past two years failed to put a floor under the property sector, China's housing ministry said local governments can instruct state-owned firms to buy "some" homes at "reasonable" prices.
Municipal financing vehicles, blamed for what Beijing calls "hidden debt," won't be allowed to buy. The homes would be used to provide affordable housing, Vice Premier He Lifeng said, without giving a timeline or a target for the purchases.
He also said local governments, already some $9 trillion in debt, can repurchase land sold to developers, and promised that authorities will "fight hard" to complete stalled projects.
China's central bank said it would set up a relending facility for affordable housing that it says would result in 500 billion yuan worth of bank financing. It would also further lower mortgage interest rates and downpayment requirements.
Additionally, it would make another 500 billion yuan available in its pledged supplementary lending facility to support policies including the redevelopment of some urban areas with older dwellings.
Goldman Sachs estimates saleable housing inventory at 13.5 trillion yuan at the end of 2023. There were 391 million square metres (4.2 billion square feet) of new housing for sale in January-April, up 24% year-on-year, the latest official data show.
Analysts at Tianfeng Securities estimate it will cost around $1 trillion to buy the entire stock. The policies on clearing inventory are considered quite powerful compared to all previous ones.
Since the property market soured in 2021, China has lowered interest rates and down payments, while most cities have eased or removed prior purchase restrictions. A whitelist developer funding programme for project completion is also struggling to get traction. And a campaign flagged by Chinese authorities at a key political meeting last month to encourage people to replace their old apartments with new ones is off to a poor start.
Longer-term questions about housing demand persist in a country facing a severe demographic downturn and where 96% of households already own at least one home.
New home prices fell for a 10th consecutive month in April, by 0.6% month-on-month, the fastest decline since November 2014. Separate data showed property investment in the first four months of 2024 falling 9.8% from a year earlier. Property sales by floor area in January-April logged a 20.2% slide year-on-year, while new construction starts fell 24.6%. Funds raised by developers were also down 24.9% year-on-year.
