BEIJING/HONG KONG >> China on Friday announced plans for local governments to buy “some” apartments and pledged forceful efforts to deliver unfinished homes, as part of a new round of measures to stabilise the crisis-hit property sector.

Earlier in the day, fresh data showing the fastest drop in new home prices in more than nine years highlighted the worsening state of an industry which at its peak accounted for a fifth of economic activity and remains a key drag on growth.

As waves of support measures over the past two years have failed to turn around the property sector, Vice Premier He Lifeng told an online meeting with other authorities that local governments can buy homes at “reasonable” prices.

The homes would be used to provide affordable housing, He said, without giving a timeline or a target for the purchases, nor detailing how they would be funded.

He also said local governments, already some $9 trillion in debt, can repurchase land sold to developers, and promised that authorities will “fight hard” to complete stalled projects.

Separately, the central bank said it would further lower mortgage interest rates and downpayment requirements.

China’s CSI 300 Real Estate index jumped more than 4% on the announcements.

“It’s a positive and encouraging direction, that the governments are stepping in to buy housing inventory,” said Macquarie chief China economist Larry Hu.

“But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they’ll fund in the end.”

POOR DATA

The upbeat mood in the stock market contrasted with the harsh reality on the ground, highlighted by poor housing data on Friday and a Hong Kong court hearing of a petition seeking the liquidation of embattled developer Country Garden.

The hearing was adjourned for June 11. Another major developer, China Evergrande Group, was ordered to be liquidated in January.

New home prices fell for a tenth consecutive month by 0.6% month-on-month in April, which was worse than a 0.3% fall in March and the fastest decline since November 2014.

A separate data set showed property investment in the first four months of 2024 falling 9.8% from a year earlier.

Property sales by floor area in January-April logged a 20.2% slide year-on-year, while new construction starts fell 24.6%. Funds raised by developers were also down 24.9% year-on-year.

Of the 70 cities monitored for the housing data, 64 reported declines in prices last month, more than the 57 cities that did so in March.

“The continued decline in property prices will intensify the wait-and-see sentiment” among would-be buyers, said Guan Xuerong, senior analyst at Zhuge Real Estate Data Research Centre.

“The industry adjustment is not yet over. It will take time for the market to recover.”

Since the property market soured in 2021, triggering a series of defaults among developers, China has lowered interest rates and down payments, while most cities have eased or removed prior purchase restrictions.

A whitelist developer funding programme for project completion is also struggling to get traction.

And a campaign flagged by Chinese authorities at a key political meeting last month to encourage people to replace their old apartments with new ones is off to a poor start as buying interest in second-hand homes remains tepid.

Goldman Sachs estimated this week that saleable housing inventory was valued at 13.5 trillion yuan ($1.87 trillion) at the end of 2023 and because some of their construction had not been finished, it would require 5 trillion yuan of capital investment to complete them. (Reporting by Liangping Gao, Ella Cao and Ryan Woo in Beijing and Clare Jim in Hong Kong; Writing by Marius Zaharia Editing by Shri Navaratnam)