(Bloomberg) -- China’s cryptic hints at a plan to address its property market woes have buoyed investors. But economists want more details before buying into the recovery story.

The ruling Communist Party last week hinted at interest-rate cuts and said it would research ways of dealing with unsold properties — a shift from past plans to build more social housing which threatened to add to oversupply problems. Upon reopening from a three-day trading break, Chinese stocks rallied on Monday, pushing gains for property shares to about 30% over the past two weeks.

It’s the first time the Politburo signaled that reducing housing inventory and improving policies for new supply are a key focus, state media reported. Top leaders are addressing the issue now because there’s limited room for new home demand to grow given a shrinking population and slower rate of urbanization, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.

The statement “sparked hopes that the government may step in to acquire unsold homes such as via state-owned platforms, which would accelerate property destocking and benefit developers,” Pang said by phone.

The government may expand current pilot programs and allow more local governments to purchase inventory directly from the market for the supply of social housing or public rentals, according to UBS Group AG. This could help to stabilize the housing market.

Yet details of the government’s plans were scarce, leaving economists to speculate on what could be coming down the pipe in coming months. Here’s what they say is needed to engineer a sustainable real estate comeback:

Affordable Housing

The government last year announced plans to build more affordable housing for sale, in the hopes of reviving sentiment. Now policymakers instead seem to be focused on plans to address the oversupply problem. 

“This is an important change to rebalance supply and demand and stabilize house prices, if implemented well,” according to Goldman Sachs Group Inc. China Economist Hui Shan. 

She noted that plenty of risks remain. Current “trade-in” programs that offer residents incentives for selling their old homes and upgrading to new properties are very small in scale, and it’s unclear if sufficient funding will be available. 

Ideally, officials will combine the plan with a pledge to absorb an overhang of properties with no buyers, according to Nomura Holdings Inc. chief China economist Ting Lu. Unsold housing inventory climbed to 3.6 billion square feet last year, the highest since 2016, according to the National Bureau of Statistics, as prices tumbled and sentiment stayed depressed. 

“Taking over those inventories rather than building public housing from scratch could be a much better strategy for Beijing and local governments,” Lu said in a note to clients. 

Doing so on a national level would bring China closer to a Singapore-style public housing model, though it could also limit upside gains to real estate investors.  

Local Help 

A potential buyer of unsold inventory is local governments. The People’s Bank of China announced a program last year to provide low-cost funds for participating banks, mostly state-owned, to purchase unsold homes and convert them to rental housing.

The central government could encourage more of these local purchases with additional low-cost loans or engineer a special facility for public rentals and expand the white-list of supported projects, UBS’s China Economist Wang Tao wrote in a note to clients. 

“Any top-down guidance to clarify implementation details would also help to reduce moral-hazard risk and local officials’ hesitance,” she wrote. 

So far, several large cities including Qingdao and Fuzhou are said to have bought apartment buildings to turn them into subsidized rental housing, though the program has yet to pick up steam across the country.

Cutting Rates and Rules

Policymakers will likely aim for additional policy easing rather than wholesale support for the market, according to Barclays Plc analysts. So far, that’s included reduced down payments in big cities and removing some purchasing curbs.

“We see further (full) relaxation of home purchase restrictions” in a few more major cities in the near-term, according to the economists led by Chang Jian. That “could help lift demand and absorb the surging secondary market inventory, though the effects could be short-lived.” 

Tech hub Shenzhen and the capital Beijing are the latest cities to loosen home-buying restrictions for some purchasers in some areas. 

“We remain cautious about a bottoming of the economy as we think the worst has not yet passed for the property sector,” Chang said, adding she expects the PBOC to cut rates twice by 10 basis points each this year.

What Bloomberg Economists Say...

“Translating these plans into concrete policies will be crucial for lifting sentiment and, ultimately, growth...There are no specific measures yet for absorbing large property inventories or diffusing local government debt risks. That said, the overall tone and direction are clearly positive. We will further assess the impacts as details are released.”

— Chang Shu, Chief Asia economist.

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