China's huge real estate market is collapsing. Housing prices are in the best everywhere, property developers are going bankrupt, and people are starting to wonder if real estate can be a viable investment again. The property crisis is weighing on China's economic growth and sending international investors in a panic.
Under the new strategy, ** will take over a larger share of the domestic real estate market, which will change the situation in which the real estate sector has dominated the private sector for many years. According to the policy advisers who participated in the discussion and the recent announcement, the strategy has two main options as pillars.
One of the options is for the state to buy out undesirable projects in the private real estate market and convert them into housing, which can then be rented out, or in some cases. Another package advocates the State itself to build more affordable housing for low- and middle-income families.
The goal is to increase the share of state-built, restricted, low-cost or ** housing in China's housing stock from the current 5% to at least 30%, the policy adviser said.
These plans can also take years to complete. The cost will be enormous. According to some analysts, the cost could be as high as $280 billion per year for the next five years, totaling about $1$4 trillion.
The core question is whether the funds can be afforded. China's local** region is already heavily indebted, and the strategy has been fraught with complexities over the past few years as it has been under- or poorly implemented to stimulate economic growth and clean up the real estate mess.
One of the top priorities for 2024 is to accelerate the construction of a "new model" for real estate development. According to an interpretation of the meeting, the focus of this model should be on the provision of affordable housing. **Initial plans call for an additional 6 million affordable housing units over the next five years, according to the document.
To help kick-start this strategy, the People's Bank of China (PBOC) has allocated a total of RMB500 billion in low-cost loans to a number of policy banks. A number of projects financed by this funding have already started.
Real estate should no longer occupy such an overly influential position in the domestic economy. For many years, the real estate sector had driven China's economic growth, at one point accounting for about a quarter of GDP. Excessive credit inflows into real estate speculation not only increase risks in the financial system, widen the gap between rich and poor, but also divert resources from the so-called "real economy".
To some extent, China's housing market has returned to its roots. At the end of the 90s of the 20th century, the country's leaders initiated the market-oriented reform of the real estate industry, and they initially envisioned a two-track system, in which some people buy privately developed properties, while others live in state-subsidized housing.
In the decades that followed, however, private developers like China evergrande expanded rapidly and gradually dominated the real estate market. Today, more than 90 percent of Chinese households own their homes, compared with about 66 percent in the United States.
This shift to private ownership has created enormous wealth in China. But the real estate market's growth has also triggered a debt-fueled bubble that has left many young families unable to afford their ideal homes, too far from their socialist roots.
After a years-long campaign to curb excessive real estate investment, the real estate market fell into turmoil last year, with domestic and foreign economists calling for more decisive measures to implement structural adjustments to the real estate sector.
Currently, there are a large number of vacant houses across China, and many buildings need financial support. By converting more private properties into subsidized housing for rent or rent, it will help advance the oft-emphasized goal of "common prosperity" and make Chinese society more equal.
China Development Bank revealed on December 19, 2023 that it has granted RMB 2 credit to affordable housing projects in Fuzhou0.2 billion yuan, which will be specially used to support the construction of the city's placement affordable housing projects. The project, which is expected to be completed in 2026, will provide about 701 housing units that will be offered to middle-income families at the local level.
According to information from Hunan Province**, the China Development Bank has also provided a loan of RMB 10 million to Hunan Province** for the renovation of a dilapidated urban village in Changsha City.
It is unclear how much of the money from the loans granted will be used to build new projects or to buy existing properties from commercial developers and repurpose. China Development Bank and Hunan Province** did not respond to requests for comment.
In early January this year, China's central bank and the State Administration of Financial Regulation, the country's top financial regulator, issued new guidelines pledging to provide financial support for subsidized rental housing projects, the exact amount of which was not specified. According to the guidelines, financial support from the state will help revitalize the housing stock.
The practice of building new affordable housing is much clearer and easier to do, and it can also play an additional positive role in supporting China's construction industry. But when the Chinese population is decreasing, the expansion of new housing will also increase**. The IMF expects China's basic demand for new housing to fall by nearly 50% over the next decade.
The domestic economic downturn may provide an opportunity for China** to buy more properties at a lower cost, making it easier to prioritize the conversion of existing properties.
If China does significantly improve affordable housing, it will become a kind of transfer to poor households, which is urgently needed to allow people to spend more money on other consumer spending.
Over the past few years, some Chinese cities, including Zhengzhou and Suzhou, have implemented their own plans to buy thousands of unsold properties from developers and convert them into affordable housing for low-income families, including farmers who have been forced to evict by urban development.
The current housing crisis is much worse than the last downturn and faces greater challenges in picking up the pieces.
Real estate