China recently announced steps to stabilise its crisis-hit property sector, with the central bank facilitating 1 trillion yuan ($138 billion) in extra funding and easing mortgage rules, and local governments set to buy “some” apartments.
Investors hoped the measures marked the beginning of more decisive government intervention to compensate for waning demand for new and old apartments, to slow down falling prices and to 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.
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. “It’s a bold step,” said Raymond Yeung, Chief Greater China Economist at ANZ, of the measures. “The biggest problem is whether the government purchase programme will induce private sector demand. Clearing inventory will increase cash flow to developers and help their financial stability, but it does not address private sector confidence.”
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. Municipal financing vehicles, blamed for what Beijing calls “hidden debt,” won’t be allowed to buy.
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. China’s central bank said it would set up a relending facility for affordable housing that it says would result in 500 billion yuan worth of bank financing. It would also further lower mortgage interest rates and down payment requirements.
Additionally, it would make another 500 billion yuan available in its pledged supplementary lending facility to support policies including the redevelopment of some urban areas with older dwellings.
