The fallout from China’s property downturn has been so severe that the government is mulling an unprecedented "bailout."

According to Bloomberg, China’s State Council has requested feedback from several provinces on a plan to direct local governments to buy up millions of unsold homes.

Under the proposed plan, local governments and state-owned enterprises would buy vacant homes from developers on the brink of bankruptcy.

The idea is to clear excess inventory that accumulated following years of overbuilding, which eventually forced Beijing to adopt stricter regulations on how much developers could borrow and subsequently build.

While the plan seems sensible on the surface, implementing it could prove more difficult, not to mention extremely expensive.

According to Jeffries Financial Group’s Shujin Chen, the plan would likely cost more than 2 trillion yuan, or $277 billion—a vast sum for local governments that are already swimming in debt.

By 2023, China’s local government debt had reached a staggering 92 trillion yuan, or $12.6 trillion. That’s roughly 76% of the country’s GDP.

Analysts across Asia’s banking sector said the plan has considerable risk, with one analyst telling Reuters that “It would only work in higher-tier cities but not lower-tier ones.”

“Telling local governments in these cities to buy inventory would just burn their balance sheet,” said the analyst, who chose to remain anonymous.

Despite these risks, there’s good reason why government authorities are even considering such a plan.

A deepening crisis

In the first four months of this year, Chinese home sales plunged by 47%, threatening to displace 5 million people from their jobs or homes.

While Evergrande was the fuse that ignited China’s property downturn, the crisis runs much deeper than any singular developer.

Property developers, including Evergrande and others, borrowed huge sums of money to maintain their property boom.

Things appeared to be going well until Covid, when public health lockdowns, slowing economic growth, and a decline in credit triggered a liquidity crisis.

When the dust began to settle, dozens of property developers collapsed, and several of the country’s major banks reported sickly property portfolios.

By April of this year, the Chinese government was secretly directing corporations to avoid publicly defaulting on their loans.

Experts said that was a huge red flag, possibly signaling dysfunction in Chinese markets as a result of the property downturn and other factors.

Although the government has tried to throw the property sector a lifeline, including a 100 billion yuan special lending program, home sales remain in freefall.

And demand is unlikely to improve anytime soon, with or without the government’s help.

According to the China Real Estate Information Corp, sales among the country’s top 100 developers have declined for 11 straight months and in 23 of the past 27 months.

The monthly declines aren’t small, either, ranging from 29% to a whopping 60% year-over-year.