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May 15, 2024 | China Ready To Write Down Real Estate Values. Who’s Next?

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

Governments worldwide are looking for ways to “ease the real estate crisis” now sweeping much of the developed world. The most popular ideas seek to prop up prices while enabling new buyers to obtain even more credit.

After decades of epic malinvestment in real estate, China is at the forefront of the spreading property crisis. Over the past four years, the government has directed a series of add-more-debt-and-stir efforts. However, with rising unemployment and unaffordability at multi-decade lows, buying ability and appetite are not reviving. In the first four months of 2024, China’s home sales fell about 47%, and unsold inventory hovered at an eight-year high.

At the April 30 Politburo meeting, China’s 24 most senior leaders said they were looking at ways to “digest” the existing stockpile of homes. This week, news of a new approach emerged: Local state-owned enterprises may be asked to help purchase unsold homes from distressed developers at steep discounts using loans provided by state banks, with many of the properties to be converted into affordable housing.

The trouble is that local governments’ debt levels are already high, and bank balance sheets are being eroded by rising bad loans and narrowing profit margins (below since 2013). Writing down asset values and bad debts seems an inevitable outcome. See: China Considers Government Buying of Unsold Homes to Save Property Market.

Bloomberg has learned that China is considering a proposal to have local governments across the country buy millions of unsold homes. This would be one of its most ambitious attempts yet to salvage the beleaguered property market. China Editor James Mayger and Chief North Asia Correspondent Stephen Engle analyze the plan on “Bloomberg: The China Show.” Here is a direct video link.

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May 15th, 2024

Posted In: Juggling Dynamite

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