China hints at property crisis fix, markets react positively

Chinese stocks saw a significant rise on Thursday after a major city announced plans to buy unsold homes, which analysts suggest might be a pilot for a larger solution to the country’s property crisis.

The Hang Seng Index in Hong Kong closed up by 1.6%, reaching its highest point since August. The index has surged nearly 30% from its low in January, entering a bull market earlier this month.

Property developers led the increase, with an average rise of 3.1%. Longfor Group, the ninth largest homebuilder in China, soared 11%, making it the top performer on the Hang Seng Index. Sunshine 100 China Holdings, a developer based in Beijing, saw an impressive 127% jump, becoming the best performer in the broader market.

This rally followed an announcement from a district in Hangzhou, a megacity, stating that the government would buy unsold residential homes and convert them into affordable housing.

This announcement boosted expectations that the Chinese government is considering a nationwide proposal for local governments to buy millions of unsold homes, a measure labeled a “major solution” by Chinese media for the property sector’s crisis.

Further fueling these expectations, the National Development and Reform Commission, China’s top economic planner, pledged on Thursday to “promote affordable housing” and explore “a new model” for the real estate sector.

Citi analysts view this move as largely symbolic, showing government support for the housing sector with a “national team” approach.

Speculation about such a bailout has been growing since last month when a Chinese media outlet reported that Beijing was looking to Japan’s experience with long-term stagnation and considering a plan to acquire unfinished housing units across the country. These units would then be converted into low-cost housing and either sold or rented out.

Analysts from ING Group described the proposal as a significant support measure, potentially easing the negative impact of new US tariffs on Chinese exports.

However, fund managers remain cautious. Jeff Zhang, an equity analyst at Morningstar, expressed cautious optimism about the “government-led buying of unsold units,” noting that funding remains a key concern as the initiative rolls out in more cities.

Beijing has been grappling with a prolonged property crisis that has heavily impacted the economy and led to nationwide protests by homebuyers.

In response, many major cities, including Hangzhou, Xi’an, and Chengdu, have recently relaxed home-purchase restrictions.

At the end of last month, the Politburo, China’s top decision-making body, committed to exploring new measures to address the housing crisis, including implementing “city-specific” policies to reduce housing inventory.

Investors have been steadily reinvesting in Chinese stocks since last month, following a prolonged sell-off that had driven key indexes in Hong Kong and Shanghai to their lowest levels in years, erasing trillions from the value of listed companies.

The Nasdaq Golden China Index, which tracks Chinese companies listed on Wall Street, has risen 11% since early April, reaching its highest level in over seven months on Monday.