China struggles to sell home bailout plan to local govts

Purchases make little financial sense for cities, few of which have heeded the call

In May, China's central government urged more than 200 cities to buy unsold homes to ease oversupply. More than three months later, only 29 have heeded the call.

The glacial pace of implementation - driven in large part by the unattractive economics of the plan for local governments underscores the challenge President Xi Jinping faces as he tries to arrest a record property slump that is threatening to undermine the country's growth targets.

The plan has been a key part of the government's attempt to shore up the real estate sector while achieving Mr Xi's goal of creating more affordable housing. The disappointing progress raises the pressure for more forceful measures as China tries to deal with 382 million sq m of excess inventory, equivalent to the size of Detroit.

"Local governments have made slow headway," Mr Ding Zu Yu, chairman of Shanghai CRIC Info Tech, wrote in a late August report.

Purchases stood at only 1.9 per cent of unsold apartments nationwide as at July, Mr Ding estimates.

Local bureaucrats are reconciling the demands from Beijing while trying to be prudent about costs. Buying apartments at this point makes little financial sense for those officials, as apartment prices are expected to drop at least another 30 per cent in major cities before stabilising, according to Jefferies Financial Group.

Estimated returns from turning inventory into affordable housing are also below the cost of funding.