Chinese authorities recently announced new measures to support state-owned enterprises (SOEs) in buying unsold apartments, as part of their efforts to address issues in the real estate sector. This move is aimed at helping developers secure more funding to complete construction on pre-sold properties. The People’s Bank of China has pledged to provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local SOEs for the purchase of unsold apartments. This support is expected to release 500 billion yuan in financing for such purchases, which can then be turned into affordable housing. The government hopes that the funds generated from these sales will enable real estate companies to finish construction on other apartments.
Furthermore, commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January. This move is intended to ensure the completion and delivery of pre-sold homes. However, Vice Premier He Lifeng emphasized that housing projects failing to meet the requirements to be on the whitelist will need to address their issues independently. The Ministry of Housing and Urban-Rural Development reiterated that developers that are financially unsustainable should go bankrupt, while those that require restructuring should undergo that process. This emphasis on accountability and transparency indicates a shift towards a more sustainable real estate market in China.
Despite the government’s efforts, challenges remain in the Chinese real estate sector. Local governments have limited fiscal resources, which may limit their ability to purchase unsold inventory. There are concerns about rent-seeking behavior and moral hazards in the decision-making process of what properties to buy. Additionally, the current housing prices in China are deemed too expensive relative to household income and rent yield. Experts like Zhu Ning caution that unless there is a significant change in housing prices, the government may be hesitant to engineer a significant increase in prices.
In response to the challenges facing the housing market, the People’s Bank of China has removed the floor on mortgage interest rates and lowered the minimum down payment ratio for first- and second-time home buyers. These changes are aimed at stimulating home buying activity and increasing liquidity in the market. However, delays in apartment deliveries have been on the rise in recent years due to financing difficulties faced by developers. Estimates suggest there are approximately 20 million pre-sold, unfinished apartments in China, leading to a backlog in the housing market. The current sales pace indicates that it will take over two years to clear the existing stock of new homes, posing a significant challenge for the real estate sector.
Market data indicates a decline in house prices, with the 70-city house price index falling more quickly in April than in March. This downward trend suggests a softening in the housing market, raising concerns about the overall health of the real estate sector. The figures released by Goldman Sachs show an 8.5% month-over-month decline in house prices in April, signaling a significant shift in market dynamics. This decline may impact developer profitability and financing options, leading to further challenges in the housing market.
China’s efforts to support its housing market are facing scrutiny as challenges persist in the real estate sector. While government support for SOEs and unfinished properties is a positive step, concerns about market conditions, housing prices, and delivery delays remain. It is crucial for policymakers to address these issues effectively to ensure the stability and sustainability of the Chinese housing market.