China promises billions of dollars in measures to support struggling real estate sector

BEIJING – Chinese authorities on Friday announced new restrictions on state-owned enterprises to allow them to buy unsold apartments to help developers obtain more funds to complete construction of sold properties. promised support.

These and other measures announced on Friday mark the latest efforts by the Chinese government to address problems in its huge real estate sector.

“I think it’s encouraging that policy is shifting towards supporting the housing market,” said Ning Zhu, a professor of finance at Tsinghua University and author of the book “China’s Guaranteed Bubble.”

People’s Bank of China Vice Governor Tao Ling told reporters at a press conference on Friday that the People’s Bank of China has already provided 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (state-owned enterprises). He said he would make unsold apartments available for purchase. built.

The central bank expects the support will make it possible to raise 500 billion yuan to help state-owned enterprises buy affordable housing.

The central bank said the real estate company could use the proceeds from the sale to complete the construction of other apartments.

Regarding unfinished sold real estate, Xiao Yuanqi, deputy director of the State Financial Supervisory Administration, told reporters that since the program was announced in January, commercial banks have not been able to complete the construction of whitelisted projects. It said it provided 935 billion yuan in loans.

“Government purchases of housing stock will inject more liquidity into developers, giving them more resources to deliver homes,” Larry Hu, Macquarie’s chief China economist, told CNBC. I can enter,” he said. “Finally, the government stepped in as the buyer of last resort.”

“At this stage, policy implementation is primarily carried out by state-owned enterprises and local governments, but their resources may be too limited to move the needle at the macro level,” he said. “We may see further efforts from the central government in the future.”

Earlier on Friday, Vice Premier He Lifeng spoke at a national video conference about ensuring the completion and handover of sold homes, according to state media.

Officials told reporters Friday that housing projects that don’t meet the requirements to be whitelisted will have to deal with the issue on their own.

“Developers that should go bankrupt should go bankrupt, and developers that need restructuring should be laid off,” Dong Jianguo, deputy director of the Ministry of Housing and Urban and Rural Development, told reporters, translated by CNBC. He said the interests and rights of homebuyers should be prioritized and those who violate the law should be punished.

It will take time to resolve China’s real estate problems.

Among the challenges facing recent measures, Zhu noted that local governments’ financial resources remain limited, limiting the amount they can purchase.

“There can be significant rent-seeking and moral hazard when deciding what to buy and what to give away,” he added. Rent-seeking refers to someone trying to make more money without creating more value.

“Unless potential homebuyers see a significant change in house price growth, current house prices remain too high relative to household incomes and rental yields,” he said. “However, we do not know whether the government intends to engineer another significant increase in house prices.”

The People’s Bank of China on Friday lifted the floor on mortgage interest rates and lowered the minimum down payment ratio for first-time and second-time home buyers.

For many years, many apartments in China tended to be sold before construction was completed. However, delays in the delivery of completed apartments have increased in recent years as developers have run into financial difficulties.

Nomura estimated last year that there were about 20 million such sold and unfinished apartment units in China.

At the current sales pace, it will take more than two years for the existing stock of new homes to be exhausted, according to a Caixin report citing information from a local research firm. This is almost double the historical pace of 12 to 14 months, the report said.

The official home price index for 70 cities released on Friday fell faster in April than in March, according to a Goldman Sachs analysis that looks at seasonally adjusted annual weighted averages.

According to Goldman, this figure represents an 8.5% month-over-month decline in April, a sharper decline than the 5.6% decline in March.

The report said: “Despite the strengthening of local housing mitigation measures in recent months, real estate markets in lower-tier cities continue to suffer from weaker growth fundamentals compared to higher-ranking cities, including more serious oversupply issues.” “We believe we still face strong headwinds.”

Correction: This article has been updated to reflect that Larry Hu is Macquarie’s chief China economist.