China is lending a helping hand to the struggling real estate market – once again. The country has launched a series of measures to support the sector, according to a recent statement from the Chinese central bank.
Authorities, the government and the central bank are trying to counteract the extreme fall in prices. This is intended to boost demand for housing in order to support the collapsing market.
Among other things, a nationwide minimum mortgage interest rate was abolished. In addition, the minimum down payment for home purchases was reduced. With the amended regulation, buyers of a primary home only have to pay a minimum of 15 percent of the purchase price, while for buyers of a second home the rate is 25 percent. Previously, the rates for down payments were 20 and 30 percent respectively.
In addition, the central bank will provide additional capital. It wants to launch a refinancing program for public housing. The volume is to be 300 billion yuan, which is the equivalent of 38.3 billion euros. The state news agency Xinhua also reported that the country’s local governments are being asked to buy commercial properties at reasonable prices and convert them into affordable housing.
Mountains of debt amounting to billions
The overheated Chinese real estate market, which accounts for a quarter of the gross domestic product, has been in crisis for years. Industry leaders such as Evergrande and Country Garden are sitting on mountains of debt and regularly have to put off their creditors.
Authorities have stepped up efforts since 2022 to stabilize the sector, which is a key driver of the world’s second-largest economy, but a significant recovery has so far failed to materialize.
However, the measures show that the authorities have recognised that the situation on the property market needs to be addressed urgently, said Raymond Yeung, chief economist for Greater China at ANZ Bank. “This is a bold step,” he added: “But whether all local governments will have the financial capacity to fulfil the central mandate is an open question.”
Goldman Sachs estimated the value of marketable residential real estate at around 1.72 trillion euros at the end of 2023. Since some construction projects are not yet completed, capital investments of around 640 billion euros would be required to complete them. A recent campaign to encourage Chinese people to replace old homes with new ones has so far largely failed. Owning a home is a valuable commodity in the Middle Kingdom. Recently, two provincial capitals – Hangzhou and Xian – lifted all restrictions on home purchases to attract buyers. Investors expect other megacities to follow suit.
In a country that is struggling with demographic problems and in which 96 percent of households already own at least one residential property, the long-term demand for housing is questionable, say real estate experts.
Prices in free fall
According to the National Bureau of Statistics (NBS), new home prices in China fell for the tenth month in a row. In April, there was a month-on-month decline of 0.6 percent – the sharpest decline since November 2014. Real estate investment in China fell by 9.8 percent year-on-year in the first four months. Sales collapsed by 20.2 percent. The funds raised by China’s property developers also fell by 24.9 percent.
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