(Yicai) June 16 -- Shanghai has become the third Chinese first-tier city after Shenzhen and Guangzhou to start buying unsold homes and converting them into affordable housing.

A rental housing investment enterprise under the government of Minhang, a suburban district in Shanghai, will begin soliciting newly built real estate projects with ready-to-deliver properties, clear property rights, and no ownership disputes in the southern areas for acquisition and then repurpose them into affordable housing.

Shenzhen was the first Chinese first-tier city to unveil a plan to buy unsold real estate projects and repurpose them for affordable rentals last August. It was followed by Guangzhou in November.

Minhang’s move shows that Shanghai has also started acquiring unsold properties, which may become a benchmark for the sector, said Yan Yuejin, deputy director of the Shanghai E-House China Real Estate Research Institute. “Previously, government-led acquisitions of existing properties were primarily seen in second- and third-tier cities.”

The new housing market in first-tier cities presents huge structural differences in demand depending on location, Yan explained. For example, in Shanghai, newly built luxury projects in core districts are quickly sold as soon as they hit the market, while those in suburban and far-suburban districts still face pressure, with areas dense in new property supplies struggling to reduce inventory.

“As one of Shanghai’s suburban districts, Minhang taking the lead in stocking commercial houses holds significant market implications,” Yan noted. Local governments’ acquisition of existing commercial housing will speed up the destocking process, help builders improve cash flow, and promote a balance between supply and demand in the property market, he added.

China’s central bank announced the setting up of a CNY300 billion (USD41.7 billion) re-lending fund in May last year aimed at supporting local state-owned enterprises to buy unsold residential properties and repurpose them as affordable housing to address both the national housing glut and growing demand for affordable housing among lower-income groups.

Since then, multiple regions in China have launched related pilot projects. According to the China Real Estate Information Corporation, over 60 cities have authorized SOEs to acquire existing commercial properties for affordable housing purposes so far.

In addition to loans from financial institutions, Zhejiang and Sichuan became the first Chinese provinces to issue special local government bonds for the purpose of financing these initiatives.

Editors: Tang Shihua, Futura Costaglione