Politburo Proposals Spark Optimism in China’s Troubled Property Market
The following is an excerpt from Lizzi C. Lee's op-ed in The Diplomat. Lizzi is a Fellow on Chinese Economy at the Asia Society Policy Institute's (ASPI) Center for China Analysis (CCA).
Amid eroding market confidence and an escalating surplus of housing inventories, Beijing has reaffirmed its dedication to revitalizing its faltering property sector. A pivotal Politburo meeting recently outlined new strategies aimed at reducing the oversupply of existing homes and promoting new housing developments. The announcement was met with enthusiasm in financial circles, evidenced by a significant uptick in developer shares. The response pushed the Hang Seng Mainland Properties Index to a yearly high increase.
At the heart of the government’s refreshed approach is an initiative that permits local authorities to convert unsold housing units into social housing. Although details are scant, it is speculated that the policy could resemble a “trade-in” scheme, where residents may exchange their older homes for vouchers, which are then usable as down payments on new properties. The older properties would subsequently undergo renovation and be repurposed, potentially alleviating the inventory glut and rejuvenating the resale market.
However, the initial market response might be excessively optimistic. The property sector continues to face severe, enduring challenges. Now in its fourth year of decline, the market has seen an unprecedented drop in home prices. The industry is grappling with liquidity issues and an increase in developer defaults, illustrating the depth of its systemic malaises.
Furthermore, the Politburo’s proposed measures are not without precedent. They mirror initiatives from a decade earlier when a similar surplus prompted a downturn, leading to widespread insolvencies among developers and a 30% reduction in local government land sales revenues. The response then also involved disbursing cash compensations to displaced residents, thereby encouraging sales in new developments. While this approach initially helped decrease inventory levels, it inadvertently led to property prices surges in lower-tier cities as demand soon outstripped supply.