HONG KONG — Shares of Chinese property developers soared on Thursday following reports that China is considering a plan for local governments to purchase millions of unsold homes from struggling companies. This potential move is seen as a major step towards easing the ongoing property crisis in the country.
Hong Kong’s Hang Seng Mainland Properties Index closed up 4.9% on Thursday, reaching its highest level since November 24. The sub-index has risen by approximately 30% since mid-April, when speculation began about possible measures to stabilize the struggling property sector after months of disappointing home sales.
Among the top gainers were defaulted private developer Fantasia and KWG Group, both jumping 63% and 40%, respectively. State-backed Sino-Ocean Group also saw a surge of 46%.
Hong Kong’s markets were closed on Wednesday for a public holiday, but have since caught up to the gains in mainland property shares. China’s CSI 300 Real Estate index also saw a 3.5% increase on Thursday, following a 2.2% rise on Wednesday.
According to a report by Bloomberg News, the State Council has been gathering feedback on a preliminary plan from various provinces and government bodies. This comes after a meeting of the ruling Communist Party leaders in late April, where efforts were called for to address the mounting housing inventory.
Under the reported plan, local state-owned enterprises would be asked to purchase unsold homes from distressed developers at significant discounts, with loans provided by state banks. These homes would then be converted into affordable housing, providing much-needed relief for the struggling property market.
In addition, a news briefing has been scheduled for Friday afternoon by China’s housing ministry, central bank, the National Financial Regulatory Administration, and the Ministry of Natural Resources to announce supporting policies aimed at ensuring housing delivery.
Bloomberg News also reported that a meeting will be held on Friday morning with key officials from the housing ministry, financial regulators, local governments, and state banks to discuss the property market and a proposal to clear excess housing inventory.
While Reuters could not independently verify these reports, the potential plan has already sparked optimism among investors and analysts.
China’s property sector has been struggling with a debt crisis since mid-2021. Despite multiple policy measures introduced since 2022, the sector has yet to see any significant improvement. As it represents about a fifth of the economy, the property market remains a major drag on consumer spending and confidence.
In recent years, some local governments have announced plans to purchase unfinished or unsold homes from developers and convert them into social housing. However, the scale of these efforts has been relatively small.
To address the issue of unsold housing, authorities have also ramped up policies in recent weeks. Major cities such as Beijing and Shenzhen have eased home purchase restrictions, with some even allowing homebuyers to “swap” to a new home from an old one.
JPMorgan, in a report, stated that the reported plan in consideration could be a game-changer, potentially stabilizing property sales rather than seeing a further decline. However, they also expressed skepticism about the scale of the plan and its impact on the market unless the funding comes from the central government.
Nomura, another financial institution, believes that if local governments can acquire a significant volume of unsold homes from developers, it could help resolve the inventory issue and provide much-needed funding for credit-trapped private companies. This, in turn, would support construction activities and alleviate the downward spiral of the sector.
However, there are concerns about the lack of housing demand in smaller cities, with worries that this plan could further strain the financial health of local governments. With local governments already facing over $9 trillion in debt, this poses a significant risk to China’s economy and financial stability.
Some analysts have also raised questions about the feasibility of the plan in lower-tier cities, where there may not be enough demand for the excess housing inventory. They worry that this could ultimately burden the balance sheets of local governments.
Overall, the potential plan to have local governments purchase unsold homes from distressed developers is seen as a positive step towards addressing the ongoing property crisis in China. If implemented effectively, it could provide much-needed relief for the struggling sector and support the country’s overall economic growth.
