China rolled out a series of major measures to save its crisis-hit property sector this week, but some analysts have been left asking: ‘Where’s the money coming from?”
Beijing will allow local governments to buy “some” apartments, has relaxed mortgage rules and pledged to deliver unfinished homes.
Investors hope the measures mark the beginning of more decisive government intervention to compensate for waning demand for both new and old apartments, slow down falling prices, and reduce a growing stock of unsold homes.
Analysts have long called for the government to step in with its own purchases to prop up a sector which at its peak accounted for a fifth of GDP and remains a major drag on the world’s second-biggest economy.
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Since the property market began its steep downturn in 2021, a string of developers have defaulted, leaving scores of idle construction sites behind, and sapping confidence in what had for decades been the preferred savings instrument for the Chinese population.
China Real Estate Newspaper, a publication managed by the housing ministry, said the “heavyweight policies” marked “a significant historic moment” for the property sector.
“It’s a positive and encouraging direction, that the governments are stepping in to buy housing inventory,” said Larry Hu, chief China economist at Macquarie.
“But in order to evaluate how powerful the impact will be, the key questions are who will be funding the purchase and how much they’ll fund in the end.”
After waves of support measures over the past two years failed to put a floor under the property sector, China’s housing ministry said local governments can instruct state-owned firms to buy “some” homes at “reasonable” prices.
The homes would be used to provide affordable housing, Vice Premier He Lifeng said, without giving a timeline or a target for the purchases.
He also said local governments, already some $9 trillion in debt, can repurchase land sold to developers, and promised that authorities will “fight hard” to complete stalled projects.
‘It’s a Bold Step’
Separately, the central bank said it would set up a 300 billion yuan ($41.53 billion) re-lending facility for affordable housing and further lower mortgage interest rates and downpayment requirements.
China’s CSI 300 Real Estate index jumped nearly 9% on the announcements.
Friday’s policies showed authorities realised the property market downfall needed to be “urgently” addressed, said Raymond Yeung, chief Greater China economist at ANZ.
“It’s a bold step,” he added. “But how all the local governments will have the financial capability to fulfil the central mandate is an open question.”
Goldman Sachs estimates saleable housing inventory at 13.5 trillion yuan ($1.87 trillion) at the end of 2023 and because some of their construction had not been finished, it would require 5 trillion yuan of capital investment to complete them.
There were 395 million square metres (4.25 billion square feet) of new housing for sale in January-March, up 24% year-on-year, the latest official data show.
Analysts at Tianfeng Securities estimate it will cost around $1 trillion to buy the entire stock.
“The policies on clearing inventory are considered quite powerful compared to all previous ones,” said a senior executive at a defaulted Shanghai-based developer, speaking on condition of anonymity due to the sensitive nature of the topic.
“Psychologically, it’d let investors think the government is ‘paying the bill’, and it is shifting the risks from property to banks and local governments.”
Developer Defaults
Since the property market soured in 2021, triggering a series of defaults among developers, China has lowered interest rates and down payments, while most cities have eased or removed prior purchase restrictions.
A whitelist developer funding programme for project completion is also struggling to get traction.
And a campaign flagged by Chinese authorities at a key political meeting last month to encourage people to replace their old apartments with new ones is off to a poor start as buying interest in second-hand homes remains tepid.
Longer-term questions about housing demand persist in a country facing a severe demographic downturn and where 96% of households own at least one home.
The upbeat mood in the stock market contrasted with the harsh reality on the ground, highlighted by poor housing data on Friday and a Hong Kong court hearing of a petition seeking the liquidation of embattled developer Country Garden.
The hearing was adjourned for June 11. Another major developer, China Evergrande Group, was ordered to be liquidated in January.
New home prices fell for a tenth consecutive month by 0.6% month-on-month in April, the fastest decline since November 2014. Separate data showed property investment in the first four months of 2024 falling 9.8% from a year earlier.
- Reuters with additional editing by Sean O’Meara
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