Daily Management Review

China Is Planning A Real Estate Fund Worth Up To $44 Billion For The Distressed Industry: Reports


China Is Planning A Real Estate Fund Worth Up To $44 Billion For The Distressed Industry: Reports
According to a central bank official of China with direct knowledge of the situation, China will form a real estate fund to assist property developers in resolving a crushing debt crisis, with a war chest of up to 300 billion yuan ($44 billion) in an effort to restore confidence in the industry.
The action would be the state's first big effort toward rescuing the troubled property industry since the financial problems were made public last year.
The fund's initial size would be set at 80 billion yuan with support from the People's Bank of China (PBOC), according to the individual, who declined to be identified owing to the delicacy of the topic.
He stated that the state-owned China Construction Bank will contribute 50 billion yuan to the 80 billion yuan fund, but the funds will come from the PBOC's refinancing facility. If the strategy works, he says, more banks will follow suit, with a goal of raising 200 to 300 billion yuan.
China's property sector, a critical pillar of the world's second-largest economy, has been lurching from crisis to crisis and has been a big drag on development over the past year. This month's homebuyer uprising added to the authorities' woes. more info
According to some observers, a fund would only give a portion of the solution.
"We don't know details of the fund yet. If just 80 billion it's not enough to solve the problem," said Larry Hu, chief China economist at Macquarie. "I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems ... we need a real estate recovery."
There were no comments available from China Construction Bank, the PBOC and China's cabinet, the State Council.
Global investors are focused on any changes in China's property market, which, along with associated industries such as construction, accounts for more than a quarter of the country's GDP (GDP).
According to the source, the fund will be used to finance the purchase of incomplete home projects, complete their construction, and then rent them out to individuals as part of the government's effort to increase rental housing.
Such a step would emphasise the central government's priority of providing more inexpensive accommodation for young people at a time when some local governments are hesitant to create rental housing because land sales are a vital source of revenue.
According to a notice seen by the media earlier this month, Henan-government backed Zhengzhou Real Estate, which set up one of the country's first local bailout funds last week with state-owned Henan Asset Management amid the mortgage boycott, plans to use 20 billion yuan to acquire 50,000 units and turn them into rental housing.
Turmoil in China's property market, ranging from the debt crisis to credit restriction and the mortgage boycott, has shaken investor confidence and prompted officials to scramble to prevent difficulties from spilling over into the broader economy.
"If the (fund) can be realized in the near future, it helps avoid more developers from defaulting and also helps to improve market sentiment as well as developers’ sales," said Raymond Cheng, head of China research at CGS-CIMB Securities.
The newest news boosted the Hang Seng Mainland Properties Index by more than 5 per cent early Monday, and it was up 3.5 per cent by mid-afternoon trade. The CSI 300 Real Estate Index increased by over 2 per cent.
On Monday, financial information provider REDD first reported on the real estate fund.
The fund will help more than a dozen property developers, including the troubled China Evergrande Group, according to REDD, citing unnamed sources.
The developers eligible for fund support would be chosen by regulators and local governments, according to REDD, who added that the fund might be used to purchase financial goods issued by the developers or to finance state buyers' acquisitions of their projects.
According to the article, Beijing is also preparing a national strategy for the issue of special bonds for shantytown reconstruction.