China Had a Plan to Rescue Its Housing Market. It’s Not Working.

Bloomberg Audio Studios, podcasts, radio news. It's been more than three years since China Evergrand Group collapsed and sent a shockwave through the country's property market. EVERGN shares down about thirty percent this week alone. That's, of course, the stock that's lost more than ninety percent of its value since the peak.

The authorities are trying to ring fence this situation at Evergram.

We know it is the most indebted developer in the world. You know, there's concern that you miss these payments, there could be cross default. The stunning fall of one of the country's largest builders marked the beginning of a property slump that continues to drag down the Chinese economy. Today, Chinese property crisis will probably not be resolved anytime soon.

Real estate has gone down, stocks have gone down, salaries have gone down.

China's real estate market was once valued at more than fifty trillion dollars and made up a full quarter of the economy, But now, more than three years later, the housing crisis doesn't seem to be getting any better. All across China, tens of millions of newly built apartments lie vacant. Developers are struggling to finish construction and homeowners are watching

So the big question is where are we in this property crisis and what has been done? Is it working?

Lulu Chen is Bloomberg's editor for Asia Finance and Investing.

And I would say that Seizinping and his government came up with this miracle pill, which is that they are going to let the local governments by the unsold inventory, access inventory and converted into affordable housing. Now, in theory, great idea, but on the ground it's running into all kinds of challenges.

Welcome to the Big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, China's Housing Rescue Plan. What is the Chinese government doing to save the property market, Is it working, and what's

Chung Sho is ground zero for a China's housing crisis. It was one of the first few studies that saw its real estate market crash. It was at the center of the mortgage boycotts if you remember a few years back, when people refused to pay their mortgages because the developers were not able to finish the construction on the houses that they already pre sold.

Junk Jo is a city of about twelve million people. It's located in the Yellow River Valley in the heartland of China.

It's the capital of Nam Province and that used to be one of the nation's forest provinces. Junzhou these days is most famous for being home to the largest iPhone factory, Fox Cohn. They have their largest factory there.

The arrival of factories supporting Fox KHN and the ev maker byd kicked off a period of rapid growth in the city and new residential communities sprouted up.

Before the market crash. Junho was super ambitious. They wanted to attract talent and investment. They wanted to become a financial center, a logistics hub, hub and they even built this massive artificial lake and Mammadde Financial Island.

But Lulu says, even in the early days, there were signals that jung Chou probably had overbuilt.

I was reporting a story about China's property bubble about twelve years ago, and we did look at Jungzhou, and that was a place back then already attracted a lot of skepticism. People were calling a ghost town. And even back then it was you could see construction everywhere and plots and plots of fields being converted into land for

Bloomberg reporters recently traveled to Junchhou, and Lulu says the city feels less of a ghost town these days, but it still looks like a gigantic construction site.

If you travel to Junjo today, you would see the whole city just rife with half finished projects and government loans are having some effect. Cranes are warring again, but it's still stacks and stacks of empty buildings, empty skyscrapers, and these massive boulevards with very few cars, lands that were slated for development sitting idle, so much so that locals have turned them into vegetable gardens.

In the decade through twenty twenty, junk Jou's urban area more than doubled, but the population only grew less than fifty percent. And Lulu, why is it that junk jo never realized its goals? Why can't it just build its way into prosperity.

Yeah, well location, so Junjo is in the heartland of China, and the context for their ambition is while they were plotting this out, there were one hundred other cities who wanted to be the saying they all wanted to be technology hubs, they all wanted to be financial hubs. So think of Junjho, but times by dozens or even hundreds. And this was happening across China at the time.

And when the city government in junk Joe finally realized that they were in trouble in twenty twenty two, they sprang into action.

Juanjou threw everything on the wall after the property crisis happened. They've tried so many ideas that officials from other cities have been flocking there to study the model. They gave loans to developers, trying to help them complete and finish projects. They offer to buy surplus units, and even subsidies payments to residents who would replace their outdate at homes.

Junk Cho's government purchased more than one hundred thousand unsold units from real estate developers. It didn't say how much money it spent, but local media Taishin reported the amount could be around thirty billion yuen or about four billion dollars. According to a state backed magazine, about three quarters of the funding comes from commercial bank loans and the interest rate was only three percent. And what did they do with the properties that they bought.

They convert the mental affordable housing, which is something that she has tried to champion. And these public units would be both for sale or for rent.

And how is that going slowly?

Is going slowly? I think on the rental friend they made some progress in attracting more people. On the sales front, it seems that there's simply not enough demand where people are willing to buy public housing even at such low prices because of the belief that the prices are still going to drop.

In theory, it sounds like a great idea. By purchasing these apartments and converting them into public housing, the government is trying to kill two birds with one stone to absorb the oversupply on the market and to answer present She's call to make housing more affordable. But Lulu says, in reality, there are a lot of challenges on the ground.

So something as specific as finding enough apartments that fit the criteria of what the government wants. Often they want to find entire apartment blocks of small units that can be converted into public housing, and that's a huge challenge in itself. They also need to access cheap financing to make money off of these projects, and then they have to persuade the developers to sell these apartments at steep discounts,

That's quite a bit.

Yeah yeah, So the developers aren't willing or simply can't afford to do this.

What the government ideally wants is that in some ways the developers, even though they're selling it for discount, they can at least.

What offload the inventory since they're gonna go belly up or get liquid at to restructured.

It sounds like the government has to jump through a lot of hopes to make that happen. Yes, and Lulu, is this strategy working in Junjo?

I don't think that's working. Junjo's property prices are still falling, and what's happening in Junjo is very indicative of what's happening in the rest of China.

What is happening in the rest of China. What else is Beijing doing to shore up the property market and can they succeed? That's after the break. China's property crisis has become a massive headache for the world's second largest economy. Across the country, there are tens of millions of unsold homes.

Yeah, so, Bloomberg Economics estimates that the country has as an inventory of about five point two billion square meters of unsold housing. It would be the equivalent of sixty million apartments.

Sixty million apartments, that's enough to house the entire population of France. Bloomberg Economics estimates that it would take more than four years to sell that inventory. That's assuming sales don't keep falling Lulu. These numbers are staggering. What else is Beijing doing to support the property market.

Yeah, They've made it easier and cheaper for people to buy homes. They've lowered the existing mortgage rates, which would lessen the burden for homeowners. In addition, the government has been easing its monetary and fiscal policies since late September, and they've also provided lending to developers so they can finish approved projects. And this is what we commonly refer

That's a huge number. That's half a trillion US dollars.

Yeah, that's one of the issues. And then the other thing is the whitelist loans only address the issue of finishing unbuilt projects. Right, there's the other part of the issue, which is this excess supply of inventory, and unless the government can address this excess inventory issue, the prices are not going to rebound.

Even with the tons of money the central government is pouring into the market to turn the property crisis around, these fixes don't seem to be working so far. Used home prices have declined for thirty nine straight months through October to a level about thirty percent below the July twenty twenty one peak. Lulu says there's a perfect storm of structural issues that helps explain why the government isn't really seeing the results they're hoping for.

Demographic challenges, which means that people are aging, population is dropping, not enough demand. Also, the developers persistent liquidity crunch, unfinished homes weighing on buyer confidence, and families stuck with this mindset that home prices won't rise. Ceazingping has made it quite clear that he doesn't want housing as a speculative investment. With that kind of messaging, people are going to interpret that.

Fundamentally, it all boils down to simple economics. There's too many apartments and there's not enough people who want to buy them, And Lulu says, if the government can't figure out a way to ease the crisis and stabilize the housing market, there could be even bigger consequences for the country.

At this moment, the property crisis is the greatest threat to China's economy, and to a certain extent, it's the government's owndoing because they're policy restrictions on developer leverage exacerbated and triggered this unfolding of the real estate sector that

This is the Big take Asia from Bloomberg News. I'm Wanha. Listen to our previous episode on China's real estate meltdown after the nation's biggest developer, Country Garden, defaulted, and how it upended hundreds of thousands of lives. You can find the link in the show notes. This episode was produced by Young Yah Naomi Um and Jessica Beck. It was mixed by Alex Suguiera and fact checked by Adrianna Tapia.