BEIJING (Reuters) - China’s central city of Zhengzhou has asked residents to sell their second-hand homes to a local state-owned company and buy new ones instead, in a bid to reduce new-home inventories and boost the local property sector.
Local state state-owned company Zhengzhou Urban Development Group Co. will buy 500 second-hand homes from April 20 to June 30, according to a notice released by the Zhengzhou Real Estate Association on Monday.
Residents must buy a new home in the main urban area for a total price that is not less than the total price of the home they are selling, the notice said.
Most of China’s small and medium-sized cities have suffered frail property markets, with the entire property sector in a liquidity crisis since a crackdown on high leverage on developers in 2021.
In Zhengzhou, new home prices fell month-on-month for a 12th straight month in March, according to data from China’s statistics bureau on Tuesday.
I don’t really understand what this accomplishes.
If you sell a house and then buy a new house, there’s still going to be a house on the market. It’s not reducing housing supply.
This is totally just a guess, but maybe it justifies the labor they paid for to build new homes. The city spent a lot of CCP dollars to build a big city, but the new homes are sitting empty which looks really bad for the statistics/metrics the local government gets measured on by the CCP. So if they show that the new homes are being bought, then they are able to justify all the money they spent.
Or it could be a way to hide a kickback to a developer.
Or maybe it is a way to get people to change the way they think about buying/selling/moving. If people are used to just staying in the same house for their whole lives, then you only need new houses if you have a growing population. If you need to pay laborers to build “something” to keep them employed (make work), then getting people more comfortable with buying a new house and selling their old house (that probably gets flipped or demolished) allows you to justify building new houses, plus a market for paying people to demolish, plus a market for paying people to be realtors. State-owned labor markets can get weird and don’t always make sense.
Maybe.
googles
It sounds like the central government is worried about housing prices, and the way they’re dealing with it is apparently to create a new class of housing that one can’t sell.
Maybe these new ones are of that sort and the old ones are going to become that sort. Apparently Zhengzhou is buying up some properties to do that with. This could be part of that.
As part of those plans, the state is set to become China’s biggest home-builder. The country’s leaders want to construct millions of “social housing” units for low-income households, which cannot be resold like normal commercial units. Such is the scale of the planned construction, social homes will come to dominate overall housing supply by 2030. As much as 4trn yuan will be spent on social housing and other state building this year and next, estimates S&P Global, a credit-rating agency. According to Capital Economics, a research firm, just as construction by developers began to plummet year on year in late 2021, building by other types of companies, mainly local-government firms, soared (see chart). As a result, 30-40% of new housing supply will be social homes by next year, up from just 10% currently.
Local governments may also become the largest buyers of the country’s housing stock. The city of Zhengzhou recently announced that it would purchase 10,000 homes to make them social units. Many will be rented out. Although there is no estimate of how big a landlord local governments will become, several other cities have announced similar plans.
A few powerful state-owned firms are on the rise. CR Land, owned by the central government, notched a 3% year-on-year increase in its core profits—an astonishing accomplishment when most of its peers have lost money or collapsed. COLI, another centrally controlled giant, saw profits fall by a very respectable 3%. As the crisis has played out, home sales by the largest state firms fell by only 25% between mid-2021 and mid-2023, while those at the largest private ones tumbled 90%.
Hmm.
So, I’m kind of missing context, but maybe this is what they’re up to.
As I understand it, China doesn’t have much of a tradition of stock market investing (for obvious reasons).
And the land ownership situation is wacky. Part of what drove the communist revolution was upset over land ownership. As I understand it, Buddist temples had gotten exemptions from taxation, so they’d hold land as a proxy for other parties. Just a mess. A big part of the communist revolution was the promise of land redistribution. That happened. So, due to land reforms introduced when they went communist, you also couldn’t buy and sell farmland. Instead the state owns it, and you can lease it for 99 years or something like that. Then China underwent rapid urbanization. People moved to cities. People were allowed to own apartments. When you combine rapid urbanization with a country that’s rapidly becoming wealthy, you get exploding real estate prices, because that’s an asset that people can invest in. A lot of people got wealthy by leveraging as far as they could and going long real estate.
Well, that created a huge bubble. You had skyrocketing prices, then plunging prices.
China’s new home prices decline at fastest pace since 2015
BEIJING, April 16 (Reuters) - New home prices in China fell at their fastest pace in more than eight years in March as the debt woes of major property developers continued to drag on demand and the economic outlook.
So maybe their idea is that the state is gonna limit the amount of housing on the market, force it into the rental market, and then rent it so as to flatten booms and busts.
Thing is, that seems like it’d create an enormous amount of money-losing rentals held by the state or SoEs. Like, if the state uses capital to buy housing stock and take it off the market, they might prop up housing prices for people who are only interested in buying and selling, but then they’re going to have more rentals than the market wants.
Potential buyers have also been wary of purchasing new homes because of concerns about the ability of indebted developers to deliver projects on time.
Well, that could solve that. The developer is basically getting bailed out by the state. Basically, the state generates artificial demand for existing lived-in homes. The existing people move to new homes for which there is no demand, at least at their price. Their money goes to the homebuilder.
But there’s a reason that would-be landlords aren’t just buying and renting those houses. They’re priced above market rate, can’t be rented for enough to make sense buying at the sales price. So the state, or at least SoEs, is going to be eating a loss, since it won’t be able to rent the properties at a sane rate.
With the state set to consume China’s property industry, what could go wrong? For a start, state firms face dangerous debts. Local-government firms sit on estimated collective debt of 75trn yuan, or about 60% of gdp. When such firms buy land from local governments they merely shift money from one pocket to another. These transactions have kept money flowing into local coffers, but are building up unsustainable burdens. Some local-government firms have started to issue bonds for the sole purpose of paying off other companies’ debts. Analysts fear that this level of spending cannot continue much longer, especially in poorer provinces.
Additional debts might appear to policymakers to be a price worth paying for control over China’s most important asset. The future of the housing market, the thinking goes, would include fewer boom-and-bust cycles if sober state firms were in charge.
I dunno. That sounds to me like they have a mess and they’re basically saving homebuilders (not going under) and homeowners (house prices don’t drop as much) and maybe renters (if they let the rent be set by the market, resulting in low rent rather than simply vacant houses) at the expense of the taxpayer (has to purchase a lot of properties and rent them at unfavorable terms). But they gotta get that money to lose from somewhere, so they’re gonna have to clobber homeowners and renters to get the cash via taxes.
googles
https://www.nytimes.com/2023/08/24/business/china-economy-safety-net.html
Beijing policymakers, who have a longstanding aversion to financial protections for households, have begun trimming social spending this year.
I guess cutting services is functionally equivalent to taxation.
Since then, China has mostly doubled down on investments to generate growth. The biggest industry by far over the last several years has been building apartments — not consumer-oriented services like travel or restaurant dining.
The result is a glut of new apartments that could cripple the economy. China has accumulated enough empty apartments to meet seven years’ worth of demand.
The threadbare social safety net has contributed to the glut of apartments, as families kept buying extra homes as investments they could sell in case of hard times.
Yeah, that sounds compatible with my guess above. Not enough familiarity with the situation or enough numbers in the articles to say if that’s right, though.
I gotta say, this is one of the most well-researched guesses I’ve ever seen. You deserve an award.
This is just a guess but it might be a way to get people to move into new developments which would increase the value of the other unsold homes in said development. Nobody wants to take the risk of moving into an empty neighborhood in case nobody else does. However if you don’t have to worry about the risk of selling your existing home it might make it easier to take that leap of faith.
deleted by creator
I suspect the way it’s supposed to work is people will sell old houses with land to the local government and in return get a new apartment in the orphan development.
Local government gets more land to use for corrupt development projects while at the same time rescuing the white elephant created in the previous round of development.
What they should do is wreck our economy by building a bunch of housing over here.
