Zeroing in on empty homes, China throws developers a lifeline

Sun Jul 5, 2015 5:07pm EDT
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By Koh Gui Qing

BEIJING (Reuters) - Dismayed by the millions of unsold homes in China's troubled real estate market, the Chinese government is taking matters into its own hands: by buying some properties and turning them into public housing.    Like a white knight riding to the rescue of distressed developers, a handful of local governments are snapping up thousands of empty homes at hefty discounts and re-selling them to the country's poorest households.

    This cannot be a cure-all for China's huge supply overhang. At the end of May, according to the National Bureau of Statistics, unsold residential floor space totaled 657 square kilometers - the most unsold space in at least two years, and covering an area nearly the size of Singapore. 

   Still, the policy getting tested in at least six provinces looks like a win for all. Low-income households gain from a bigger supply of subsidized homes, the government boosts its poverty alleviation work, developers deplete an oversupply of houses that has dampened prices, and crucially, China's cooling economy gets a fillip from a healthier property market.

    All of this comes with a caveat: government purchases of homes - done with discounts averaging between 10 percent and 52 percent - add to a mountain of public debt and do little to discourage the next housing bubble.    But the potential benefits are alluring, leading authorities in some of China's worst-performing property markets to experiment with mass purchases of homes.


    'GHOST CITY' MOVEMENT    In the Inner Mongolia city of Erdos, notorious as a "ghost city" after a building frenzy failed to attract buyers and residents, authorities in Dongsheng district bought houses in April and May.

    Online documents showed authorities, through tenders, bought 3,660 housing units from eight developments in May for between 2,766 yuan to 3,612 yuan ($446 to $582) a square meter.        "We will watch the situation in the (housing) supply," said an official at the Dongsheng housing authority who declined to be named. "If there is a need, we will buy again."

    Repeated phone calls to the Erdos government went unanswered   Continued...

Apartment blocks and office buildings are pictured in Beijing, June 11, 2015.  REUTERS/Jason Lee