Abstract: Recently, the real estate market has been flooded with significant policies, and relevant departments have also begun implementing measures to digest existing housing stocks. This paper attempts to analyze the fundamental elements and potential impacts of government purchase programs from a cost-benefit perspective.
Firstly, for government purchases and renovations of existing residential properties to achieve the multiple desired market effects, certain conditions must be met. This policy is more likely to be effective when real estate market prices are below their fair value, particularly suitable for second-tier cities with development potential but temporarily suppressed housing prices. In contrast, when property prices exceed their fair value, market forces alone are unlikely to complete the acquisitions. This scenario is more typical of the real estate markets in first-tier and smaller cities. If purchases are made in these cities, they might either incur higher costs or impact the effectiveness of the policy implementation.
Secondly, if there are costs associated with government purchases and renovations of existing residential properties, the government should bear the primary responsibility for these costs. Real estate companies might also consider sharing some of the losses, which could be seen as costs for their acquired liquidity. Banks and other financial institutions should adhere to market-oriented and commercially sustainable principles, balancing profits and risks to avoid excessive liabilities.
Lastly, the experience and lessons from the United States in purchasing problematic assets suggest that using leverage effectively can allow less government funding to mobilize more social capital for purchases. Entities implementing the purchases need to possess relevant professional skills to reduce the difficulty of asset pricing and risk management during the purchase process. In designing the purchasing scheme, it is crucial to value and enhance the enthusiasm of all participants, especially financial institutions, to ensure the effective implementation of the policy.
