China’s property package should be seen as a way to shrink sector

BEIJING’S latest package of measures for its depressed real estate sector is being panned. It seems, even now, not enough is being done to mount a proper rescue. Among other things, municipalities have been told to buy up unsold homes from stricken developers. These units would be turned into low-cost housing and sold-off or, failing that, rented out. China’s central bank is to pump in 300 billion yuan (S$55.8 billion) in loans to enable local governments to buy up those unsold homes. From available evidence, the plan looks to have been road-tested in the megacity of Hangzhou. In the meantime, the country’s top economic planners are exploring a new model for the beleaguered sector.

Not good enough, critics argue. The total value of unsold homes, unfinished projects and unused land in China amounts to about 30 trillion yuan, it is claimed. Getting back to 2018 levels – the year the real estate boom peaked – would require more than 20 times the amount available under this scheme, it is argued. The real estate sector accounted for about 30 per cent of China’s gross domestic product at the peak of the market.

All of these pronouncements sound very learned and ominous. But how are those figures derived? The sum total of all non-performing bank loans to the sector? So why don’t the banks just seize the collateral? On close examination it becomes clear that there is an issue of setting a price for unsaleable property and abandoned projects.