Bloomberg Scoop: Chinese Government Considers Buying Unsold Homes to Ease Glut

The Chinese government is reportedly considering a bold move to purchase unsold homes to alleviate the housing glut. This unprecedented plan would not only impact the housing market but also reshape how people save and invest their money. State-owned enterprises may be tasked with buying distressed properties at a discount, funded by state banks. However, this proposal raises concerns about the already strained local government finances and the banks' balance sheets. The housing inventory has reached a high of 3.6 billion square feet, and estimates suggest it could cost around ¥7 trillion to clear the unsold properties within 18 months. The plan's feasibility and sustainability are unclear, with questions about budget constraints and the actual demand for housing in less developed areas where overbuilding has occurred.

Takeaways

• 🏢 The Chinese government is considering a significant move to buy unsold homes to alleviate the housing glut.
• 📈 This plan represents a major shift in how the government interacts with the housing sector and could impact the economy and personal savings.
• 💭 The proposal is still in consultation with local governments, banks, and government agencies, indicating it's not yet finalized.
• 🏗️ State-owned enterprises may be tasked with purchasing unsold homes from distressed developers, potentially at steep discounts.
• 📊 There are concerns about the rising debt levels at the provincial level, which could be exacerbated by this plan.
• 💰 The financial strain on local governments and banks could increase, as their balance sheets are already under pressure.
• 📈 Unsold housing inventories have reached a high of 3.6 billion square feet, the highest since 2016.
• 💵 Tim Fung Securities estimates it would cost at least ¥7 trillion to clear the housing inventory in the next year and a half.
• 🤔 The plan's scope and budget are unclear, with questions about whether it would cover the entire country or just specific areas.
• 🏙 There may be a focus on poorer and less developed areas where there has been significant overbuilding and a lack of demand for housing.
• 👥 A key question remains about the demand for these homes, as there may not be enough people willing to move into the smaller cities.

Q & A

What is the significance of the Chinese government considering buying unsold homes?

The significance is that it represents a major shift in how the government interacts with the housing sector and could lead to substantial changes in the economy, affecting how people save money and invest.

What are the potential implications for distressed developers if the government buys unsold homes?

Distressed developers could potentially offload unsold homes from their balance sheets, but they would likely have to do so at steep discounts, which might not be financially beneficial for them.

What are the concerns regarding the financial strain on local governments and banks if this plan is implemented?

The debt levels at the provincial levels are already high, and this plan could put additional pressure on local government finances and banks, which are also under financial strain.

What is the current state of unsold housing inventories in China?

Unsold housing inventories have climbed to 3.6 billion square feet, the highest since 2016, indicating a significant oversupply in the housing market.

What is the estimated cost for the government to absorb the unsold housing inventory?

Tim Fung Securities estimates it would cost at least ¥7 trillion, which is nearly 1 trillion USD or 78% of China's budget deficit for the year.

What are the geographical disparities in the housing market within China?

Some areas in China have a surplus of unsold homes, while other areas, particularly tier one cities, still have high demand for housing, indicating that the plan might be more beneficial for less developed regions with overbuilding.

What is the potential scale of the program to clear the housing inventory in China?

The scale is unclear and would depend on the government's budget and the extent of the program's implementation across the country.

How sustainable is it for the government to take on massive debt to pay for these homes?

The sustainability is uncertain and would depend on the government's financial capacity, the demand for housing, and the long-term economic impact of such a program.

What is the potential issue with demand for housing in smaller cities where there is an oversupply?

Even if the government buys the unsold homes, there may not be enough people willing to move into these areas, which could limit the effectiveness of the program.

What are the current consultation efforts regarding the plan to buy unsold homes?

The plan is currently being discussed with local governments, banks, and government agencies to assess feasibility and potential impact.

What is the potential impact on how people in China save and invest their money if the government starts buying unsold homes?

This could lead to a significant change in personal financial strategies, as the government's involvement in the housing market might affect property values and investment returns.

What are the potential economic benefits for the country if the housing glut is eased through government intervention?

Easing the housing glut could stabilize the property market, reduce financial risks for developers, and potentially stimulate economic growth by increasing liquidity and consumer confidence.

Outlines

00:00

📈 China's Major Housing Market Plan

The video script discusses a significant proposal in China to address its housing market issues. The plan involves government and various parties buying millions of homes to tackle the housing crisis and stimulate the economy. Key players include local governments, state banks, and state-owned enterprises, which would purchase unsold homes from developers at steep discounts. This initiative, however, brings challenges such as increased pressure on local government finances and bank balance sheets, with debt levels already high. The unsold housing inventory has reached a record high, requiring substantial fiscal stimulus and potentially a significant portion of China's budget. The feasibility and scope of the plan, particularly in regions with different housing demands, remain unclear, raising questions about its sustainability and effectiveness.

Keywords

Housing Glut

Housing glut refers to a situation where there is an oversupply of homes on the market, leading to unsold properties. In the context of the video, the Chinese government is considering buying these unsold homes to ease the housing glut and potentially stimulate the economy. This is a significant move as it could impact the real estate market and the broader economy.

State Owned Enterprises (SOEs)

State Owned Enterprises are companies that are owned and operated by the government. In the script, it is mentioned that these entities would be asked to help purchase unsold homes from distressed developers. This indicates a direct involvement of the government in the housing market to address the issue of unsold properties.

Distressed Developers

Distressed developers are real estate companies that are facing financial difficulties, often due to an inability to sell their properties. The video discusses how the plan could be beneficial for these developers by allowing them to offload their unsold inventory, albeit at steep discounts.

Debt Levels

Debt levels refer to the amount of debt accumulated by an entity, such as a government or a bank. The script highlights concerns about the rising debt levels at the provincial levels in China, which could be further strained by the proposed plan to purchase unsold homes.

Local Government Finances

Local government finances pertain to the financial management and budgeting of local authorities. The video script raises concerns about the financial strain that the plan to buy unsold homes could place on local governments, which are already dealing with high debt levels.

Unsold Housing Inventories

Unsold housing inventories refer to the stock of homes that remain unsold on the market. The script mentions that these inventories have climbed to a significant figure, indicating a severe housing glut that the proposed government plan aims to address.

Fiscal Stimulus

Fiscal stimulus is a government spending or tax reduction strategy designed to boost economic activity. In the context of the video, the term is used to describe the potential financial measures that the government might take to purchase the unsold housing inventory and stimulate the economy.

Budget Deficit

A budget deficit occurs when a government's expenditures exceed its revenues. The script discusses the potential cost of the plan in relation to China's budget deficit, highlighting the financial implications of such an ambitious project.

Overbuilding

Overbuilding is a situation where more properties are constructed than there is demand for. The video mentions that there has been massive overbuilding in certain areas of China, leading to a surplus of unsold homes that the government is considering purchasing.

Tier One Cities

Tier One Cities in China are major metropolitan areas that are economically developed and highly desirable for living and business. The script contrasts these cities with less developed areas where overbuilding has occurred, suggesting that the plan may be more beneficial for the latter.

Sustainability

Sustainability refers to the ability of a process or system to be maintained without causing negative environmental or social impacts. The video raises questions about the sustainability of the proposed plan, considering the massive financial investment and the potential lack of demand for housing in certain areas.

Demand for Housing

Demand for housing is the desire of people to live in certain areas, which can influence property values and market dynamics. The script discusses the issue of whether there is sufficient demand for the unsold homes, especially in smaller cities where people may not be willing to move.

Highlights

The Chinese government is considering a significant move to buy unsold homes to alleviate the housing glut.

This plan represents a substantial shift in how the government interacts with the housing sector.

The initiative could lead to substantial changes in the way people save money and invest in China.

Local state-owned enterprises may be asked to purchase unsold homes from distressed developers at steep discounts.

The plan is currently in consultation with local governments, banks, and government agencies.

The move could be a 'sea change' in addressing the housing crisis and future economic operations.

Debt levels at the provincial level have risen to 56% of GDP, indicating a strain on local government finances.

The plan may put additional pressure on banks, which are already facing balance sheet pressures.

Unsold housing inventories reached 3.6 billion square feet last year, the highest since 2016.

Tim Fung Securities estimates it would cost at least ¥7 trillion to absorb the housing inventory over 18 months.

The high price tag raises questions about the budget and feasibility of scaling up the program.

The plan's impact and scope are unclear, with varying housing market conditions across different regions of China.

The plan may be more beneficial for less developed areas with significant overbuilding and unsold housing.

The government's ability to take on massive debt to fund the purchase of homes is a concern.

There is uncertainty about the demand for living in the purchased houses, especially in smaller cities.

The plan's sustainability and the actual willingness of people to move into these areas are key considerations.