Beijing’s ‘Digest’ plan signals shift in China’s housing crisis

Chinese policymakers’ passing mention last week of plans to consider “policy to digest existing housing inventory" has been a much-parsed phrase in recent days, with analysts stressing it marks the first time in a long-running real-estate downturn that top officials have publicly broached the subject of excess apartment supply. They said another part of the study—to “optimize policies on new housing supply"—suggests the government wants more public-housing options.

“It’s the first time the Politburo signaled that reducing housing inventory and improving policies for new supply are a key focus," said Bruce Pang, JLL chief economist for Greater China.

“The good old days of China’s housing market with spectacular growth is over," he said. “That’s why policymakers believe that unlocking growth potential by blending ‘something old, something new’ could hold the most promise."

China’s heavily indebted property sector remains in a yearslong slump, with major developers’ sales in decline and thousands of partly built housing developments in limbo across the country, hard hit by a liquidity crunch and a lackluster economic recovery from the pandemic.

The Politburo meeting last week and moves by a handful of cities to ease home-buying restrictions have been rare welcome news for the sector, which this week tipped the Hang Seng Mainland Properties Index into the green for the year. The index, a gauge of major listed developers in China, remains near a decade low.

Policymakers didn’t offer details about what a new housing policy might look like. At the very least, officials appear to be “brewing a new wave of [property] stimulus measures," Daiwa analyst William Wu said. “The new narrative" on property, he said, looks similar to a destocking policy from a 2016 Politburo meeting that led to state help in rebuilding shanty towns.

“It doesn’t mean the government will directly intervene and buy houses all of a sudden, but the phrasing did raise market expectations," Wu said.

UOB analysts Jieqi Liu and Damon Shen estimated that the government could allocate up to the equivalent of $277 billion for property acquisition, roughly equal to 17% of all new home sales in 2023.

Some analysts predict new details will emerge in July, when senior Communist Party members meet to discuss China’s strategic direction and economic plans for the next five years. But already, a recent trend of easing home-buying curbs has accelerated, with several major cities relaxing rules this week, including two that removed all restrictions on buying second homes.

One potential outcome is bolstered policies to control housing supply, in the same vein as recent curbs on the sale of landbanks in cities with a surplus of unsold housing, Morningstar analyst Jeff Zhang said. “As prior measures failed to contain the inventory increase, government will likely ramp up policies," he said.

Another could be policies to boost housing trade-in programs to spur fresh demand.

Zhengzhou, the capital of Henan Province, has become an early frontrunner in trade-in initiatives, with a local state-owned company last month beginning to buy up old apartments and offering residents subsidies for some home-buying costs. Shenzhen, China’s third-most populous city, recently set up a platform allowing residents to sell homes with the help of brokers and buy new ones from developers participating in the program.

Analysts disagree on whether the “digest" phrase suggests the central government would play a greater role than local governments in buying excess housing inventory.

HSBC economists said in a research note that Beijing could set up a national platform to absorb housing oversupply, then sell or rent properties in a controlled manner over time to resolve the housing crisis. “Given the depth and length of the correction and the weak finances of many local governments, we think a top-down approach by Beijing policymakers may be needed," they wrote.

ANZ analyst Zhaopeng Xing called that possibility unlikely, saying that precedent and a wide geographical variation in property policy make stimulus the responsibility of local governments.

If buying happens, “it’s going to be big spending for local governments," Xing said.

Write to Sherry Qin at sherry.qin@wsj.com and Jiahui Huang at Jiahui.Huang@wsj.com