New | China throws property developers a lifeline by turning empty properties into public housing

Dismayed by the millions of unsold homes in China’s troubled real estate market, the Chinese government is taking matters into its own hands: by buying some properties and turning them into public housing.

Like a white knight riding to the rescue of distressed developers, a handful of local governments are snapping up thousands of empty homes at hefty discounts and re-selling them to the country’s poorest households.

This cannot be a cure-all for China’s huge supply overhang. At the end of May, according to the National Bureau of Statistics, unsold residential floor space totalled 657 square kilometres - the most unsold space in at least two years, and covering an area nearly the size of Singapore.

Still, the policy getting tested in at least six provinces looks like a win for all. Low-income households gain from a bigger supply of subsidised homes, the government boosts its poverty alleviation work, developers deplete an oversupply of houses that has dampened prices, and crucially, China’s cooling economy gets a fillip from a healthier property market.

All of this comes with a caveat: government purchases of homes - done with discounts averaging between 10 per cent and 52 per cent - add to a mountain of public debt and do little to discourage the next housing bubble.

But the potential benefits are alluring, leading authorities in some of China’s worst-performing property markets to experiment with mass purchases of homes.