China’s housing conversion plan faces doubts amidst developer concerns

China’s plan to convert unsold homes into affordable housing may not provide much relief to struggling developers, Reuters reported on Monday.

The programme’s limited scale and potential low prices are unlikely to benefit cash-strapped developers, according to analysts and industry experts.

As part of a support package for the property sector, Beijing announced a 300-billion-yuan lending facility, which could generate 500 billion yuan in bank financing for local state-owned enterprises to buy completed, unsold homes.

Chinese banks, backed by the central bank’s cheap loans, are expected to extend financing to state-owned enterprises (SOEs) for these acquisitions. However, concerns lie in the programme’s reach and pricing mechanisms.

Private developers are skeptical about the programme. They are concerned that their projects may not be chosen because the programme prioritises larger cities with existing affordable housing needs. They also worry about receiving low offers from SOEs.

This cautious attitude presents a challenge for Beijing. Previous stimulus packages, despite their scale, have failed to revive the property sector, which remains a major drag on the Chinese economy.

Xintangzhen, a town in Guangzhou, is the first local government to implement a programme to purchase housing for resettlement purposes. The government plans to buy homes at cost price, which developers view positively.

However, concerns remain about the financial feasibility of covering construction loans, with analysts suggesting discounts of up to 50 per cent may be necessary for state-owned enterprises to achieve modest returns.