China needs considerable central government funding and more innovative solutions to support property destocking and stabilize the ailing real estate market, such as establishing a special institution to acquire idle housing, economists and policy advisers said.

Gong Liutang, a professor of applied economics at Peking University's Guanghua School of Management, said a special fund can be established via central government funding to acquire idle housing inventory, alleviating the obstacle faced in housing acquisition as some local governments are heavily indebted.

"A detailed plan in this regard should be made clear to the public as soon as possible to stabilize expectations," said Gong, who is also a member of the 14th National Committee of the Chinese People's Political Consultative Conference.

Zhang Ming, deputy director of the Institute of Finance and Banking, which is part of the Chinese Academy of Social Sciences, said that local government debt risks can be addressed properly if the central government is willing to offer help, given the robustness of the central government's balance sheet.

Indeed, the most prominent risk to be resolved would be real estate woes, Zhang said, suggesting establishing a national institution — financed by special treasury bonds — to manage the acquisition of idle commercial housing in smaller cities.

Zhang outlined a plan for the institution to purchase housing stock in second- and third-tier cities experiencing net population inflows through a tendering process with real estate developers. The acquired properties would then be converted into government-subsidized rental housing.

The Ministry of Housing and Urban-Rural Development, the Ministry of Finance, the People's Bank of China and other government bodies are set to hold a news conference on promoting the steady and sound development of the real estate market on Thursday.

The MOF announced on Saturday to allow local government special bonds to purchase home inventory for social housing purpose. Earlier this year, the PBOC, the country's central bank, launched 300 billion yuan ($42.14 billion) in relending for the same purpose.

Yet, analysts said the relending program was used at a lukewarm pace due to factors such relatively high funding costs, local governments' high debt burden and price discrimination toward private real estate developers, necessitating the launch of more innovative solutions.

Data compiled by UBS showed that "available for sale but unsold" residential projects stood at 19 million units as of July. UBS analysts believe that the destocking priority should focus on higher-tier cities, and estimate the total destocking cost at around 3 trillion yuan in order to normalize the inventory-to-sales ratio in 80 major cities to 13-14 months.

Wang Tao, chief China economist at UBS Investment Bank, said that while local government special bonds may provide 800 billion to 1.2 trillion yuan a year new funding support for property destocking, the implementation bottlenecks of destocking largely remain.

The issuance cost of local government special bonds is still well above the social housing rental yield and the proposed destocking price is still well below the market housing prices, Wang said.

"It means further policy adjustments are still needed to facilitate the implementation of destocking program and housing market stabilization," Wang said.

Sharing similar views, Wang Yiming, vice-chairman of the China Center for International Economic Exchanges, said a feasible solution could be establishing a special fund, financed by fiscal funds, to acquire housing stock and convert it into government-subsidized rental housing for new urban residents.