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China's cities offer gift cards and tax cuts to revive housing market

Unsold condo inventories reach highest level in over 5 years

Unsold new condominiums in 100 major Chinese cities have reached the highest level since July 2016.   © Reuters

BEIJING -- The southern Chinese city of Guilin announced an unusual incentive to energize its property sector in December: vouchers for not only homebuyers, but also top-selling developers.

The city distributed up to 300,000 yuan ($47,100) worth of vouchers to three companies that sold the most newly built condos there that month. Homebuyers received vouchers equivalent to 1% of the transaction price, usable when buying appliances and cars in the city until the end of March.

Guilin is one of many cities across China trying to spur condominium sales as national restrictions on property speculation and overborrowing push inventories up to a more than five-year high and squeeze a critical source of income for local governments.

In Zhejiang Province, the city of Jinhua this month began offering up to 30,000 yuan in assistance to migrant factory workers looking to purchase a home in certain areas -- an attempt to lift housing sales and attract more labor.

The Hunan Province city of Hengyang will cut taxes on new-condominium purchases by up to 50% through May.

Under President Xi Jinping, China's leadership in recent years has tightened rules on mortgages and lending to property developers, concerned that speculative investment could lead to a property bubble and financial crisis. These restrictions have put a major dent in the property market.

There were 520 million sq. meters of new condominiums left unsold across 100 major Chinese cities at the end of November, the highest figure since July 2016, according to the Shanghai Yiju Real Estate Research Institute.

Smaller cities have suffered the most. While new-condo inventories shrank 3% on the year in first-tier cities, such as Beijing and Shanghai, and 1% in second-tier cities, such as provincial capitals, they rose 7% in smaller cities.

Local governments until recently had been reluctant to offer incentives to lift flagging sales, given the government's concerns over speculators. But the tide began to turn in December at a Communist Party Politburo meeting and at the Central Economic Work Conference. Party leaders signaled that they would ease restrictions to meet "reasonable" demand from homebuyers seeking a place to live rather than an investment.

The shift stems partly from concerns over the property market's impact on local coffers. Local governments earn much of their income from selling land-use rights for state-owned plots to property developers.

In 2020, income from land-use rights amounted to half of central and local government tax receipts. But sluggish demand for new property has pushed down prices for these rights.

Income from sales of land-use rights increased just 4% on the year in the January-November period, down from the double-digit growth seen until 2020, according to the Ministry of Finance.

Sales will drop by 20% in 2022 and by another 5% in 2023, S&P Global projects.

The reality may be even bleaker than official data suggests. Tougher restrictions have left many developers tight on cash. More plots are struggling to find private-sector buyers at auction, prompting local-government-funded financing platforms to step in. This runs the risk of leaving governments on the hook when these platforms fail.

Many small and midsize Chinese cities are losing residents. Whether one-time incentives can give a lasting boost to property sales in such declining markets remains unclear.

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