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China’s Pledge to Reduce Housing Inventory: Challenges and Outlook

China’s Politburo meeting in April revealed a new focus on reducing property inventory and improving future supply policies. This shift towards a more market-oriented approach marks a departure from China’s previous ideological stance on property. However, analysts caution that implementing this new pledge will not be an easy task.

One significant challenge is the bureaucratic red tape associated with managing China’s vast and diverse property inventory. The identification, valuation, and management of these assets require comprehensive policies and efficient decision-making processes. Analysts from Nomura suggest that follow-up policies may be introduced slowly and with limited impact, adding to the difficulty of destocking housing inventory.

Another obstacle is the lack of major follow-up policy measures announced after previous meetings, such as the July 2023 Politburo meeting. This delay in implementing significant policy shifts can dampen market expectations. While some cities like Chengdu have already eased local property rules, others like Tianjin and Beijing have only partially relaxed their restrictions. The timing and magnitude of future policy loosening measures remain uncertain.

Furthermore, the Politburo statement does not address the issue of property prices. Raymond Yeung, chief economist at ANZ, highlights that the structural adjustment of China’s property market is still ongoing. Property sales and average selling prices have both declined, but this alone is not enough to stimulate demand. Yeung argues that a significant correction in property prices is necessary to align with market economics.

To support the reduction of property inventory, the Politburo proposes using funding from local governments to acquire unsold units. However, this approach requires substantial financial resources and coordination. If the discounts offered to local governments are insufficient, they may bear the valuation risk, impacting their debt and fiscal status. Additionally, China’s housing market still has room to decline, according to Goldman Sachs. The agency estimates that over 15 trillion yuan ($2.1 trillion) may be needed to address the sector’s issues.

In conclusion, while China’s Politburo meeting signals a shift towards market-oriented policies, challenges remain in destocking housing inventory. Bureaucratic red tape, delayed follow-up policies, demand-supply imbalances, and financial implications all contribute to the complexity of the task. As the Chinese government navigates this path, effective measures and significant investment will be necessary to revive the property market and ensure its high-quality development.

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