China's Bold Move to Revitalize Property Market Amid Home Price Decline

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China has introduced various measures to support its property sector, such as urging local governments to purchase unsold homes from struggling developers and relaxing purchasing regulations.

China's economy grew faster than anticipated in the beginning of this year. However, the growth is being hindered by the real estate sector, which used to make up to 30% of economic activity.

Vice Premier He Lifeng, who is also the Communist Party's top economic official, proposed on Friday that municipal governments purchase unsold homes and transform them into affordable social housing. This plan is seen as a significant solution for the property sector's ongoing crisis.

The People’s Bank of China (PBOC) has announced a new program to provide 300 billion yuan ($41.5 billion) in loans for state purchases of unsold homes. Tao Ling, deputy governor of the central bank, mentioned at a press conference in Beijing that commercial banks will be encouraged to support local state-owned enterprises in buying unsold homes and converting them into social housing. She estimated that the 300 billion yuan from the central bank could potentially support 500 billion yuan ($69 billion) in credit for these purchases.

An aerial view is showing buildings in the Shipangqiao Future community in Hangzhou, Zhejiang Province, China, on March 13, 2024. The Hangzhou Shifuqiao Future community is the only ''high-density old city center'' renovation project in Zhejiang Province. The demolition and resettlement houses are now being officially delivered to the residents.

The construction of the Hangzhou Shifuqiao Future community has created a unique ''air square lane'' system. This system features three core characteristics: ''three-dimensional market, three-dimensional garden, and three-dimensional connectivity.'' The community includes 1,718 sets of resettlement housing and 1,864 sets of talent rooms, as well as neighborhood centers and parks. It is also equipped with top-tier facilities like schools and medical centers. The community spans 1.45 million square meters of commercial business space and aims to become a ''high-quality development and construction of common prosperity demonstration zone'' in Hangzhou.

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China has hinted at a potential solution to its property crisis, and the markets are responding positively. There is speculation that local governments in China may buy millions of unsold homes, which has led to a surge in Chinese stocks. Investors have been increasingly optimistic and have been reinvesting in Chinese shares since the beginning of last month.

China Real Estate Business, a newspaper managed by the housing ministry of China, referred to the measures as "heavyweight policies" that represented a "significant historic moment" for the real estate industry.

Larry Hu, the chief China economist at Macquarie Group, viewed the decision to purchase unsold homes as a "positive" development for the sector. However, he noted that the plan lacked crucial information, such as the amount of funding allocated for it.

In a research note on Friday, he emphasized the importance of the central government's timing and scale in providing funding.

China's local governments have accumulated a staggering $15 trillion in debt, a significant portion of which is undisclosed. This debt has been acquired to finance pandemic-related expenses and infrastructure developments in recent years.

Sales and investments in the real estate sector have been declining for the past two years. Despite various measures introduced by the Chinese authorities to boost the market, they have not been very effective. Analysts have been urging them to take more significant actions.

Friday’s extensive rescue actions were announced in response to the worsening property downturn in April. According to government data released on Friday, property investment decreased by 9.8% in the first four months of 2024, which was a faster decline compared to the 9.5% drop in the previous quarter.

New property sales dropped by 28.3% from January to April, a bigger decline compared to the 27.6% decrease in January-March. In April, new home prices fell for the 10th consecutive month, decreasing by 0.6% from the previous month. This marks the fastest decline since November 2014, as reported by Reuters.

Analysts from Société Générale noted in a Friday report that all the negative news seems to have finally spurred a sense of urgency strong enough to prompt significant action.

The analysts were discussing the government's recent announcements, including the PBOC's cuts to mortgage rates and the sale of one trillion yuan ($138 billion) of ultra-long Treasury bonds on Friday.

On the same day, He also encouraged local governments to repurchase or directly acquire land that developers have purchased but have not yet utilized. This action is aimed at alleviating the financial challenges faced by property companies.

In China, most of the land is owned by the state. The government has the authority to grant land use rights to property developers, which helps generate a significant amount of revenue.

The People's Bank of China (PBOC) has taken significant steps to support the housing market, implementing various measures to provide additional assistance.

Banks were given the freedom to determine their own mortgage rates, eliminating a nationwide minimum. The minimum down-payment ratio for first-time buyers was reduced to 15%, while it was set at 25% for second-home buyers. Additionally, the interest rates for housing provident fund loans were decreased by 0.25 percentage points, as stated in three separate announcements by the central bank.

Reporting for CNN was done by Xiaofei Xu.

Editor's P/S:

Paragraph 1:

The measures proposed to address China's property crisis indicate a significant shift in government policy. The purchase of unsold homes by local governments and the conversion of these homes into affordable social housing is a bold move that aims to stabilize the real estate market and stimulate economic growth. It is a recognition that the previous approach of relying heavily on private developers has failed to ensure housing affordability and financial stability.

Paragraph 2:

However, the success of these measures depends on their implementation and the availability of sufficient funding. The local governments have accumulated significant debt, and it remains unclear how they will finance these purchases. Additionally, the government needs to strike a balance between supporting the property sector and preventing asset bubbles. The long-term health of the Chinese economy requires a sustainable housing market that is accessible to all citizens.