Daily Management Review

China Promises To Boost The Suffering Real Estate Industry With A Number Of Measures Totaling $42 Billion


China Promises To Boost The Suffering Real Estate Industry With A Number Of Measures Totaling $42 Billion
In an attempt to assist developers gain additional cash to finish work on pre-sold residences, Chinese officials on Friday announced fresh backing for state-owned firms to allow them to buy unsold units.
Beijing's recent attempts to resolve problems in the enormous real estate industry were demonstrated by these and other measures that were unveiled on Friday.
Author of "China's Guaranteed Bubble" and Tsinghua University finance professor Zhu Ning stated, "I think it is encouraging that the policy is taking a turn of direction trying to support the housing market."
Deputy Governor Tao Ling of the People's Bank of China said reporters during a press conference on Friday that the central bank will lend 300 billion yuan ($42.25 billion) to financial institutions so they could lend it to state-owned companies (SOEs) in the area so they could purchase unsold homes that have already been completed.
The support is expected to free approximately 500 billion yuan in funding for these kinds of acquisitions, which the SOEs may use to build affordable homes, according to the central bank.
According to the central bank, the real estate companies can then utilise the money they get from such sales to finish building further units.
Regarding unfinished, pre-sold houses, since the program's launch in January, commercial banks have given 935 billion yuan in loans to whitelisted projects' developers, according to National Financial Regulatory Administration Deputy Director Xiao Yuanqi, who briefed media on the matter.
Chief economist at Macquarie Larry Hu stated, "The government's purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery." "The government intervened as the buyer of last resort at last."
"At this point, SOEs and local governments are primarily responsible for putting the policies into practice, but their resources might not be sufficient to make a significant macro impact," he stated. "The central government may make more efforts in the future."
According to official media, Vice Premier He Lifeng delivered a speech at a national videoconference meeting earlier on Friday about guaranteeing the completion and delivery of pre-sold homes.
Speaking with reporters on Friday, officials stated that housing developments that didn't fit the criteria to be placed on the whitelist had to take care of their problems on their own.
The deputy head of the ministry of Housing and Urban-Rural Development, Dong Jianguo, told reporters in Mandarin that developers "that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured." CNBC translated his remarks. According to him, the rights and interests of homebuyers should come first, and those who break the law ought to face consequences.
China's real estate issues will take years to resolve.
Zhu highlighted that one of the difficulties facing the current initiatives is that local governments continue to have limited financial resources, which limits the quantity they can purchase.
"Deciding what to buy and what to pass can involve a significant amount of rent-seeking and moral hazard," he continued. When someone tries to increase their income without adding additional value, it's known as rent seeking.
"The current housing price is still too expense for household income or rent yield, unless potential home buyers sense some serious change of housing prices going up," the man stated. "But I'm not sure if the government will go so far as to orchestrate another significant spike in housing costs."

On Friday, the People's Bank of China reduced the minimum down payment requirement for first- and second-time house purchasers and eliminated a restriction on mortgage interest rates.
In China, apartments have long had a tendency to sell before construction is complete. However, because developers have encountered financial difficulties recently, there have been more delays in the delivery of completed residences.
According to Nomura's estimation from the previous year, China has about 20 million of these pre-sold, incomplete units.