China last week unveiled a 300 billion yuan ($41 billion) fund to support purchases of unsold housing inventory. While marking a new approach to tackle its three-year property downturn, analysts say the funding is a mere drop in the ocean given the massive oversupply crisis.
Estimates peg China’s unsold housing stock, spanning land and completed apartments, at a staggering 30 trillion yuan based on cost – over 10 times the amount sold in 2022. The scale underscores how hundreds of billions set aside by Beijing falls woefully short of the capital needed.
The new measures, including scrapping mortgage rate floors and reducing downpayments, reflect urgency to revive a sector crucial to economic growth and household wealth. But they also highlight continued caution after years of runaway property speculation.
Unlike the U.S. response to the 2008 crisis, Beijing wants a more “targeted” and profit-minded approach to avoid reinflating a bubble while addressing moral hazard risks. Previous credit incentives failed to restore confidence as prices kept falling.
The real estate slump has become an ever-greater financial risk. April saw the fastest monthly drop in new home prices in nine years. Besides the estimated 30 trillion yuan in unsold stock, there may be 90-100 million “shadow” investment properties sitting vacant.
Analysts believe the 300 billion is likely just an initial step, with UBS projecting 2.4 trillion yuan may be needed just to reduce excess inventory in major cities to normal levels. More firepower could be required if the market remains stagnant.
While boosting social housing was already planned, purchasing unsold properties could “kill two birds with one stone.” But the strategy has limits in lower-tier cities flooded with overbuilding from overly ambitious developers chasing higher margins.
