In response to China’s collapsing real estate market, officials announced a plan to buy unsold apartments and loosen credit standards. Concerns about the declining value of real estate and the lack of interest from potential buyers are driving this action.
Affordable housing would be created from these government-purchased properties, yet it’s still unknown when the initiative will begin and how much it will cost. This approach reminds Larry Hu, chief China economist at Macquarie Group, of the Troubled Asset Relief Program (TARP) the United States utilized during the housing crisis in 2008.
Recognizing that encouraging people to purchase homes is insufficient, governments are acting as the “buyer of last resort.” China’s central bank has cut mortgage interest rates and down payment requirements in an effort to encourage people to buy homes even more.
There is still more work to be done to rebuild trust in the housing market in spite of these actions. As of March, there were 748 million square meters, or more than 8 billion square feet, of unsold property, according to official data, a record high. April saw a 0.94% decline in the price of existing homes and a 0.58% decline in the price of new homes. The yearly drops were even more dramatic, with existing home prices falling by 6.79% and new home prices falling by 3.51%.
The root cause of China’s housing crisis is the developers’ years-long over borrowing and overbuilding. Several large developers collapsed as a result of government involvement in 2020 to limit dangerous operations, including China Evergrande, which defaulted in late 2021. This resulted in a large number of unfinished flats and enormous debts, which started a series of high-profile defaults in the sector.