The View

China property: how much of the housing stockpile can the government digest?

The crisis in China’s property market is severe enough for the government to show willingness to tackle the backlog of uncompleted pre-sold projects

While this is cheering news for many, uncertainty over the timing, scale and source of the funding remains

4-MIN READ4-MIN

A man looks at an unfinished residential building where he bought a flat at the Gaotie Wellness City complex in Tongchuan, Shaanxi province, on September 12, 2023. Recent statements by the central government about its willingness to ‘study policies to digest the housing stockpile’ have raised hopes that the glut of unfinished but pre-sold homes will be addressed. Photo: Reuters

Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.

Published: 5:30am, 7 May 2024Updated: 6:28am, 7 May 2024

For a good gauge of market perceptions of the credibility of Beijing’s response to the crisis in the housing market, look no further than the research reports of Nomura, one of the most bearish voices on China whose analysis of the country’s property sector is as incisive as it is gloom-ridden.

Since the end of last year, Lu Ting, Nomura’s chief China economist, has been calling on the government to “reach into its own pockets, even with printed money” from the People’s Bank of China “to support the completion of new homes that were pre-sold by developers”.

While many other global investment banks have become more optimistic – or at least less pessimistic – about China this year, Nomura has remained resolutely downbeat. It said as recently as February 18 that Beijing had not yet “determined what measures [were] most effective in halting the downward spiral in the property sector”.

However, last week Lu was surprisingly upbeat, at least by his own bearish standards. In a report on April 30, he said Beijing “had taken a significant step towards cleaning up the big mess” in the housing market. When even Nomura strikes an optimistic tone on China, it suggests a significant policy shift in the property sector has occurred.

Shortly before Nomura published its note, Beijing announced it would explore new measures to tackle the housing crisis. The statement that caught the attention of analysts was the government’s willingness to “study policies to digest the housing stockpile”.

The stronger emphasis placed on securing the delivery of pre-sold homes comes amid speculation the government is mulling setting up a national platform to acquire pre-sold but unfinished housing projects, a move JPMorgan says would likely be viewed by markets as a “bazooka” measure.