Bloomberg Scoop: Chinese Government Considers Buying Unsold Homes to Ease Glut

Bloomberg Television
14 May 202403:38

TLDRThe Chinese government is reportedly considering a significant move to purchase unsold homes, which could greatly impact the housing market and the economy. This plan, if implemented, would involve state-owned enterprises buying distressed properties at steep discounts, using loans from state banks. However, this could exacerbate the existing financial strain on local governments and banks, with provincial debt levels already high. The unsold housing inventory is substantial, reaching 3.6 billion square feet last year, and the cost to clear this inventory could be as much as ¥7 trillion. The feasibility and sustainability of such a plan are unclear, with questions about the budget, the demand for housing in less developed areas, and the potential for increased debt.

Takeaways

  • 🏢 The Chinese government is considering a significant move to buy unsold homes, which could greatly impact the housing market and the economy.
  • 📈 This plan would represent a major shift in how the government interacts with the housing sector and could change how people save and invest their money.
  • 🏗️ Local state-owned enterprises may be asked to purchase unsold homes from distressed developers, potentially easing their financial burden but at a steep discount.
  • 📊 There are concerns about the high debt levels of provincial governments and the additional strain this plan could place on local finances and banks.
  • 📈 Unsold housing inventories have risen significantly, reaching 3.6 billion square feet, the highest since 2016.
  • 💵 Tim Fung Securities estimates that it would cost at least ¥7 trillion (nearly 1 trillion USD) for the government to absorb the housing inventory over the next year and a half.
  • 🤔 The feasibility and budget for such a large-scale program are unclear, with questions about how it would be implemented across the country.
  • 🏙️ The plan could be more beneficial for less developed areas with overbuilding, rather than for cities with high demand for housing.
  • 💰 The cost and the amount of debt the government would need to take on to purchase the homes are significant considerations.
  • 👥 There is uncertainty about the demand for living in these houses, especially in smaller cities where there may be a lack of willingness for people to move in.
  • ⏳ The plan is not yet announced and could take a considerable amount of time to materialize, if it happens at all.

Q & A

  • What is the significance of the Chinese government considering buying unsold homes?

    -The significance is twofold: it addresses the housing glut and represents a major shift in how the government interacts with the housing sector, potentially impacting the economy and how people save and invest their money.

  • What does the plan involve in terms of consultation with local governments and banks?

    -The plan involves seeking consultation from local governments, banks, and government agencies to determine how state-owned enterprises can assist in purchasing unsold homes from distressed developers.

  • How does this plan affect distressed developers?

    -While it's not necessarily good news for distressed developers, it allows them to remove unsold properties from their balance sheets, albeit at steep discounts, using loans from state banks.

  • What are the potential financial implications for local governments and banks?

    -The plan could put additional strain on local government finances and banks, which are already under pressure, due to rising debt levels and the need for significant fiscal stimulus.

  • What is the current unsold housing inventory in China?

    -The unsold housing inventory in China has climbed to 3.6 billion square feet, the highest since 2016.

  • What is the estimated cost for the government to absorb the housing inventory?

    -Tim Fung Securities estimates it would cost at least ¥7 trillion, which is nearly 1 trillion USD or 78% of China's budget deficit for the year.

  • What are the geographical considerations for implementing this plan?

    -The plan may be more beneficial for less developed areas with a surplus of unsold housing, rather than in Tier one cities where demand for housing remains high.

  • What are the sustainability concerns regarding the plan?

    -There are concerns about the sustainability of the plan due to the massive amount of money required and the potential debt that the government would need to take on.

  • Is there a demand for people to live in the purchased homes?

    -There is a question of whether there is sufficient demand, as many of the smaller cities with unsold housing may not attract people willing to move in.

  • What is the current status of the plan's announcement?

    -The plan has not been officially announced yet, indicating that there are still many details to be worked out and it may take some time before it is implemented.

  • How would the plan affect the overall Chinese economy?

    -The plan could lead to a sea change in the housing crisis and the way the economy operates, with potential long-term effects on savings, investments, and government economic strategies.

  • What are the potential benefits for the general population if the plan is successful?

    -If successful, the plan could ease the housing glut, potentially making housing more affordable and accessible, and could also stimulate the economy through increased spending and construction activities.

Outlines

00:00

🏙️ Ambitious Plan for Housing Sector in China

The paragraph discusses a significant and ambitious plan that could drastically change the housing sector in China. It would impact how people live, how the government interacts with the housing market, and how individuals save and invest their money. The plan involves state-owned enterprises purchasing unsold homes from distressed developers at steep discounts, using loans from state banks. This could alleviate the burden on developers but raises concerns about the financial strain on local governments and banks, which are already under pressure. The plan's potential implementation across the country is unclear, as is the budget for such a massive undertaking. The discussion also touches on the sustainability of the plan and the demand for housing in various regions of China.

Mindmap

Keywords

💡Housing Glut

Housing glut refers to a situation where there is an oversupply of homes on the market, leading to unsold properties. In the context of the video, it is a significant issue in China, with unsold housing inventories reaching 3.6 billion square feet, the highest since 2016. The Chinese government is considering buying these unsold homes to ease this glut, which is a core theme of the video.

💡State Owned Enterprises (SOEs)

State Owned Enterprises are companies that are owned and operated by the government. In the video, it is mentioned that local state-owned enterprises would be asked to help purchase unsold homes from distressed developers. This indicates a significant role for SOEs in addressing the housing crisis and is a key concept in understanding the government's proposed solution.

💡Distressed Developers

Distressed developers are real estate companies that are facing financial difficulties, often due to an inability to sell their properties. The video discusses how the proposed plan could be beneficial for these developers by allowing them to offload their unsold properties, albeit at steep discounts, which is a critical aspect of the potential government intervention.

💡Balance Sheet

A balance sheet is a financial statement that presents a company's financial position by listing its assets, liabilities, and equity at a specific point in time. The video refers to distressed developers getting unsold homes off their balance sheets, which would help alleviate their financial burden, but at the cost of significant discounts.

💡Debt Levels

Debt levels refer to the total amount of debt owed by an entity, such as a government or a company. The video highlights that the debt levels at the provincial levels in China have risen to 56% of GDP, indicating a strain on local government finances. This is a crucial point as it raises concerns about the feasibility and sustainability of the proposed plan to purchase unsold homes.

💡Fiscal Stimulus

Fiscal stimulus is a government spending or tax cut designed to boost economic activity. In the video, it is mentioned that absorbing the unsold housing inventory would require a lot of fiscal stimulus and spending, with an estimated cost of ¥7 trillion, which is nearly 1 trillion USD or 78% of China's budget deficit for the year.

💡Budget Deficit

A budget deficit occurs when a government's expenditures exceed its revenues. The video discusses that the cost to absorb the housing inventory is nearly equal to 78% of China's budget deficit, which raises questions about the financial feasibility of the plan and the potential impact on the country's economy.

💡Overbuilding

Overbuilding is the construction of more properties than can be sold or occupied, leading to an excess of supply. The video refers to massive overbuilding in certain areas of China, which has resulted in a glut of unsold homes. This overbuilding is a significant factor contributing to the housing crisis and is a key issue that the proposed government plan aims to address.

💡Tier One Cities

Tier One Cities in China are major metropolitan areas that are economically developed and highly sought after for living and business. The video contrasts these with less developed areas where overbuilding has occurred. The proposed government plan may be more beneficial for the less developed areas, while Tier One Cities still have demand for housing.

💡Economic Activity

Economic activity refers to the production, distribution, and consumption of goods and services within an economy. The video suggests that the government's plan to purchase unsold homes would have a significant impact on economic activity, not only in the housing sector but also in terms of how the government operates within the economy and how people save and invest their money.

💡Investment

Investment refers to the allocation of money with the expectation of generating an income or profit. In the video, it is mentioned that the government's plan would affect how people save their money and where they put their investments, indicating a broader impact on personal finance and the economy.

Highlights

The Chinese government is considering an ambitious plan to buy unsold homes to ease the housing glut.

This plan could represent a significant change in how people live and how the government interacts with the housing sector in China.

The initiative may have a profound impact on the economy and how people save and invest their money.

Local state-owned enterprises may be asked to purchase unsold homes from distressed developers at steep discounts.

The plan is currently in consultation with local governments, banks, and government agencies.

Distressed developers might benefit from removing unsold properties from their balance sheets, albeit at a loss.

The plan could exacerbate the financial strain on local governments and banks, which are already under pressure.

Unsold housing inventories reached 3.6 billion square feet last year, the highest since 2016.

Tim Fung Securities estimates it would cost at least ¥7 trillion to absorb the housing inventory over 18 months.

The cost corresponds to nearly 1 trillion USD or 78% of China's budget deficit for the year.

There's uncertainty about the extent of the program and whether it will cover the entire country.

The plan may be more beneficial for less developed areas with a surplus of unsold housing.

The success of the plan hinges on the availability of funds and the actual demand for housing in these areas.

The plan's sustainability is in question, as it would require a massive fiscal stimulus and potential increase in government debt.

There is skepticism about the willingness of people to move into the smaller cities with excess housing.

The plan's rollout and its effects on the housing market and the economy are still unclear and require further analysis.

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