Government to buy unsold homes
The Chinese government has given local authorities the green light to buy up an array of unsold properties across the country at heavily discounted prices. Experts believe that discounts of up to 52% have been achieved by the local authorities who cumulatively have now acquired millions of homes. These properties are now being resold to those at the lower end of the income spectrum which has given a significant pickup to the property sector.
While this adventurous and ambitious move has attracted the attention of real estate investors there are number of other factors to take into consideration.
Increasing public debt
One of the main issues going forward is that public debt will increase significantly and with properties now offered well below their previous “asset value” this move could potentially create yet another housing bubble. When you bear in mind that it was the creation of a previous housing bubble which led to the situation we are in today, is this potentially storing up more problems for the future?
Releasing developers to work again
The idea of developing new residential properties, selling them on at a profit and using these funds to invest in future projects has seen many real estate companies and individuals across China doing very well in recent times. Even though the Chinese authorities are acquiring unsold homes at discounts of up to 52%, this will release much-needed capital for developers who can then plan for the future. In simple terms, the Chinese residential property market came to a grinding halt recently but the wheels are starting to turn again.
Is this a long-term solution?
This is not the long-term solution that many had hoped for but it will give the Chinese real estate sector and indeed the economy a short-term pick me up. It will be interesting to see how confident residential property developers are when they receive their payments and whether indeed they are willing and able to invest in future projects in the short term.
While there is no doubt this is an adventurous move by the Chinese authorities the fact remains that the market is still flooded with unwanted residential properties. It may take some time for these unwanted properties to filter through the system and until then many developers will look towards the Chinese authorities for further support.
The Chinese authorities are renowned for “doing it their way” and this move to acquire discounted residential properties and resell to those on lower incomes is certainly a bold approach. It will be interesting to see how the situation pans out in the short to medium term and indeed whether property developers now move forward with renewed confidence having jettisoned some of their unwanted projects.