Chinese Real Estate Stocks Are Rising on Reports of Government Plans to Buy Unsold Homes - Latest Global News

Chinese Real Estate Stocks Are Rising on Reports of Government Plans to Buy Unsold Homes

By Clare Jim

HONG KONG (Reuters) – Shares of Chinese real estate developers jumped on Thursday after reports that China is considering a plan for local governments across the country to buy millions of unsold homes from distressed companies to ease a protracted housing crisis.

Hong Kong’s Hang Seng Mainland Properties Index rose as much as 6% in morning trade.

State-backed Sino-Ocean Group rose more than 50% and bankrupt private developers CIFI Holdings and Shimao Group rose more than 30%.

Hong Kong’s markets were closed on Wednesday for a public holiday. They have recouped gains in mainland real estate stocks since the previous day.

China’s CSI 300 Real Estate Index climbed over 3% on Thursday after rising 2.2% on Wednesday.

Bloomberg News said on Wednesday that the State Council is seeking feedback from various provinces and government departments on the preliminary plan after a meeting of ruling Communist Party leaders in late April called for efforts to address the growing housing stock.

The report said local state-owned companies would be asked to buy unsold houses from distressed developers at deep discounts using loans from state-owned banks. Many of these homes would be converted into affordable housing, the report said.

China’s real estate sector slipped into a debt crisis in mid-2021. Waves of policy action since 2022 have failed to turn around the sector, which accounts for about a fifth of the economy, and it remains a major drag on consumer spending and confidence.

Expansion of politics

In recent years, some local governments have already announced plans to buy unfinished or unsold houses from developers and convert them into social housing.

In addition, in recent weeks the authorities have tightened their measures to clear the inventory of unsold housing. Major cities such as Beijing and Shenzhen have eased restrictions on home purchases, with some allowing homebuyers to “exchange” an old home into a new home.

“We believe there is limited further action local governments can take to support the real estate sector. It is now up to the central government to introduce meaningful measures for the real estate sector,” Nomura said in a report.

If governments manage to acquire a significant amount of unsold houses from developers, it will help solve the inventory problem and also channel cash flows to credit-strapped private companies, Nomura said.

This, in turn, would support construction activities and mitigate the sector’s downward spiral, it said.

DEMAND CARE

However, some were concerned about the lack of demand for housing in smaller towns, and fears were raised that such a plan would place additional strain on the financial health of local governments.

Local governments already have more than $9 trillion in debt, posing a major risk to China’s economy and financial stability.

“It would only work in higher-tier cities, not lower-tier ones; “Where would the buyers come from?” said an analyst at another Asian bank, who declined to be named because he was not authorized to speak to the media.

“Telling local governments in these cities to buy inventory would just destroy their balance sheets.”

Goldman Sachs estimated this week that salable housing stock was worth 13.5 trillion yuan ($1.87 trillion) at the end of 2023, and with some of their construction still ongoing, capital investment of 5 trillion yuan would be needed to achieve it to complete them.

($1 = 7.2151 Chinese Yuan Renminbi)

(Reporting by Clare Jim; Editing by Kim Coghill and Janane Venkatraman)

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