Chinese authorities have recently announced new measures to support state-owned enterprises (SOEs) in buying unsold apartments, marking Beijing’s latest efforts to address issues in the massive real estate sector. This move is aimed at helping developers secure more funding to complete construction on pre-sold properties.
People’s Bank of China Deputy Governor Tao Ling revealed that the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local SOEs for the purchase of unsold apartments. The support is expected to release 500 billion yuan in financing for such purchases, which could be channeled into affordable housing. This initiative will enable real estate companies to generate funds from the sales of these properties, which can then be used to finish construction on other apartments.
The National Financial Regulatory Administration Deputy Director Xiao Yuanqi mentioned that commercial banks have already provided 935 billion yuan in loans to complete construction on pre-sold projects since the launch of the program in January. This financial aid aims to inject more liquidity into developers, allowing them to have more resources for housing delivery.
Vice Premier He Lifeng emphasized the importance of ensuring the completion and delivery of pre-sold homes during a national videoconference meeting. He mentioned that housing projects failing to meet the whitelist requirements would have to address their issues independently. Dong Jianguo, the deputy head of the Ministry of Housing and Urban-Rural Development, stated that developers facing bankruptcy should undergo the process, while those in need of restructuring should be reorganized. He emphasized the need to prioritize homebuyers’ interests and rights, with strict actions against any violations of the law.
Despite the new measures, challenges lie ahead in resolving China’s real estate problems. Zhu Ning highlighted that local governments face limitations in fiscal resources, which restrict their ability to make significant purchases. There is also a risk of rent-seeking behavior and moral hazard in the decision-making process. Rent-seeking refers to attempts to increase profits without adding value. Additionally, Zhu expressed doubts about the possibility of another surge in housing prices engineered by the government.
The People’s Bank of China made significant adjustments by removing the floor on mortgage interest rates and lowering the minimum down payment ratio for first- and second-time home buyers. This move aims to accelerate the housing market by facilitating easier access to financing. With delays in the delivery of completed apartments becoming more prevalent in recent years, the government aims to streamline the construction and sales process to reduce the existing stock of unsold properties.
According to Nomura, there are approximately 20 million pre-sold, unfinished apartments in China, leading to an extended period to clear the existing inventory. The sales pace suggests that it may take over two years to address the current stock of new homes, significantly longer than the historical average. The official 70-city house price index indicated a rapid fall in April, surpassing the decline seen in March. These trends point towards a challenging environment for the real estate sector.
The Chinese government’s initiatives to support SOEs in purchasing unsold apartments and providing financial aid to developers reflect a proactive approach to address issues in the real estate sector. However, challenges such as limited fiscal resources and market uncertainties could impact the effectiveness of these measures. By closely monitoring market trends and implementing targeted policies, China aims to stabilize its housing market and promote sustainable growth in the real estate sector.
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