Everyone knows China has a big problem: major developers are crippled by debts and have left millions of residential units unfinished. Few remember that the People’s Republic has long strived for the socialist ideal of providing homes for all. In 2024, Beijing is likely to usher in more drastic policies to use the property market crisis to achieve its ultimate housing policy.
China has one of the world’s highest home ownership rates. More than 90% of urban households, defined as those with residence permits, or “hukou,” own their homes. The ratio is even higher in rural regions, where villagers typically build their houses on collectively owned land.
Nonetheless the Chinese population is extremely mobile. Official data suggest there were nearly 300 million “migrant workers”, those who work and live far from their home towns, and more than 60% of them live in rental housing on an average monthly income at 4,615 yuan ($650), 40% below the nationwide average.
Runaway home prices in recent years have also made it difficult for people with “hukou” in large cities to purchase their own properties. This has instilled a sense of insecurity, especially among younger people, contributing to broader problems such as a dwindling birth rate and high youth unemployment. More and more young adults are becoming “full-time children” who live with, and off, their parents.
In August, the State Council published an all-encompassing directive calling for nationwide efforts for a “new development model” of the real estate market, with the provision of cheaper, subsidised homes being one of the key policy drives.
The opportunity, so to speak, is the current property crisis. Nearly all major private builders, including giant ones such as Evergrande (3333.HK) and Country Garden (2007.HK), have defaulted on their massive debts, leaving the construction of a large number of residential projects delayed or stalled. There isn’t an official tally of unfinished homes. In October, Nomura analysts put the figure at about 20 million units nationwide, saying it would cost $440 billion to complete them all.
Most local governments rely heavily on land sale income, so in the past they had little incentive to build an extensive housing safety net. The glut of uncompleted homes, however, offers them a much cheaper option to take on an important political duty. They could acquire stalled projects, especially those in more remote locations, below the price at which they sold the land. The injection of government funds could relieve some of the financial pressures faced by distressed builders.
There are signs that Beijing is already steering state banks to stump up more liquidity to support the new drive, with talks that the central government is planning to inject 1 trillion yuan in phases into urban renewal projects and public housing programmes. This may still not be enough, although state-owned property firms, especially those with a regional focus, could also weigh in.
Beijing will have to be comfortable with more property exposure for state banks, as well as the rising presence of the state in the real estate market. But the risks associated with the moves may be acceptable as long as they move China closer to the ideal society that President Xi Jinping envisions.
Source: Reuters
