Govt buying won't save home prices

A housing project in Luoyang, Henan province. Property prices in all major cities declined in July, the National Bureau of Statistics said on Monday. [Provided to China Daily]

As real estate prices tank across urban China, homeowners in Fuzhou, Fujian Province, can now offload their unwanted properties onto an unlikely buyer: the local government. Under a new policy, residents can sell their spare properties to municipal authorities, who will then dispense them among people displaced by the city's shantytown restoration campaign.

Reports say this innovative approach is being taken up by other localities. With China's property market plagued by lack of affordability, excessive supplies and diminished demand, this strategy appears sensible. But will it help rescue local real estate?

By the end of 2014, about 400 million square meters of commercial housing space were up for sale around the country, representing an increase of 26 percent over the previous year. The majority of these homes were in third- and fourth-tier cities, where market imbalances are among the most extreme in the country. Assuming that an average house contains 90 square meters of floor space, this means 4.4 million homes are waiting for buyers. Expecting local governments to purchase all but a tiny fraction of these properties would be unreasonable.