China: To save the real property sector

chiny24.com 1 year ago

Friday, 18. 05. 2024

Council of State (chin. 国务院, Standing Committee of the Government of the PRC) together with
Ministry of Housing and agrarian improvement (chin. 住房和城乡建设部),
People's Bank of China (chin. 中国人民银行, central bank of the PRC, equivalent to our NBP),
Ministry of Natural Resources (chin. 自然资源部) and
State Financial Supervision Administration (chin. 国家金融监督管理总局)

conference with local governments and developers on the optimisation of housing marketplace conditions. After the conference, the largest (so far) real property aid package was announced, which aims to strengthen request for oversupply of housing and at the same time aid developers in their current hard situation. And like this:

To 15%, the minimum amount of own contribution for the acquisition of an flat on the primary marketplace was reduced. It's a evidence low level of this mandatory deposit. To date, the lowest level of own contribution to the first marketplace was not little than 20% The own contribution to property buyers in the secondary marketplace was reduced to 25% (there was 30%). That's another cut. The last 1 was done 8 months ago.

The interest rate on loans from the housing fund has been reduced by 0.25 percent points, with the first fresh dwelling for people buying and borrowing for little than 5 years, the interest rate will be 2.35% and for more than 5 years it will be 2.85%. The buyer of an flat on the secondary market, with a credit for little than 5 years, will get an interest rate of 2.775 %, in the case of lending over 5 years, the interest rate will be 3.325%.

The limits on interest rates for mortgage interest rates were completely abolished by the central bank. It is the local authorities that will make autonomous decisions, depending on the financial situation, whether they will keep the minimum interest rates for these loans, whether they will rise or lower the minimum. The banks will negociate interest rates given the marketplace situation and the credit capacity of the individual. The simplification in own contribution and interest rates are breakthrough financial decisions.

Local authorities through their own state-owned companies will buy from developers (as noted: at a reasonable price) completed, unsold apartments which will be utilized after adaptation for municipal/social housing for rent. Each city will decide whether to participate in the programme or not, in accordance with the task of guaranteeing housing and the request to manage recently built vacants. In this way, it is assumed that developers will receive backing to complete their own projects, but besides to proceed operating, to get out of the crisis. On the another hand, others will be given the chance to get inexpensive housing through rent.

The central bank allocates RMB 300 billion (about PLN 162.73 billion) to this intent (as part of assistance to local authorities in the implementation of the repurchase programme). In addition, the People's Bank of China will launch funds of RMB 500 billion (about PLN 271.22 billion) to meet the expected greater request for mortgage loans for this programme.

For 4 months now, a “white list” programme has been run by local authorities. It was confirmed to continue. The ‘White List’ is simply a list of selected improvement projects in a given area, specified as those that meet the conditions, criteria and get a ‘green light’ to receive a debt to finance the completion of housing. If conditions and standards are not met, corrective action should be implemented, creating appropriate task management mechanisms. As of 16 May this year, the amount of approved loans for projects from the "white list" across the country reached RMB 935 billion (about PLN 507.18 billion).

Land that has been purchased (in fact leased) by developers, but remains unused where construction has not been started, or where construction has been "stuck" for various reasons, will be purchased by local authorities. Local authorities will be able to issue peculiar long-term self-government bonds for this purpose. The land recaptured as well as any unfinished projects redeemed by the local authorities is intended to yet meet the housing needs of the inhabitants of the region and to create/build public buildings.

The central authorities will encourage local authorities to loosen restrictions and restrictions previously introduced, in peculiar the anticipation of purchasing multiple housing. For over 3 years, the rule of “one family, 1 apartment” has been common. The authorities of the 15 largest Chinese cities have already abandoned this concept. Again, there are any number of housing units in the primary and secondary markets.

Local authorities are to carry out inventory of housing resources – fresh houses with flats for sale, constructions in advancement and vacants to find precisely the state of the property marketplace in the administrative unit. The elimination of housing “stocks” is the key to addressing property risks.

Deputy Prime Minister He Li Feng (chin. 何立峰, liable for the economy), who conducted this conference, stated that “the real property sector is powerfully linked to economical development”. He besides stressed the request for further implementation of the alleged “three major projects”, namely:

construction of social housing,
renovation of old buildings in cities and
the improvement of public infrastructure.

These "revolutionary" decisions are a clear signal to stabilise the real property market. It is intended to help, among another things, increase public assurance in the real property sector and, as a result, increase demand. Housing finance policy on the request side of the real property marketplace is intended to supply healthy and unchangeable support for development. The Chinese real property marketplace is expected to stabilise and reflect in a comparatively short period.

Many experts believe that China's growth of 5.2% last year and 5.3% in the first 4th of that year was achieved by reducing the economical dependence of the PRC on the real property sector. China is transforming its economical improvement model. The real property sector will gradually be subject to marketplace regulation. This means that the priorities of the authorities will fall from the current position to the lower. In the context of economical development, which is not dependent on real estate, the policy of the authorities towards real property companies aims to stimulate a faster pace of their transformation, a change in business doctrine that does not adhere to reality, forcing these companies to importantly improve the level of after-sales services, to make leasing activities, brokering services, property management services and another business activities related to the sector.

Action by authorities to defend the real property marketplace has generated affirmative opinions, but raises many questions. What impact will the establishment of fresh structural tools have on the market? Does the introduction of a combination of real property and financial policy mechanisms mean, however, (contrary to the declarations) returning to the old way of "reliant on real property as a driver of the economy"? In practice, how will this mechanics strengthen the essential changes in the functioning of the real property sector? As with these tasks, the barks require large capital investments, the local authorities will manage erstwhile their debt is estimated at up to 41,426 trillion RMB (approx. PLN 22,47 trillion)?.

The answer will come to wait at least a fewer months. Even the best plan will not work immediately erstwhile the property crisis in China has been going on for more than 3 years and its sources are profoundly rooted in the mechanics of the full sector system. The real property sector in China in many respects is simply outdated, inactive functioning as if we were inactive surviving in the late 1990s.

Some statistics:

Prices of fresh housing dropped in April 10th period in a row, by 0.6% period to month, which was the fastest fall since November 2014. Investments in real property in the first 4 months of 2024 decreased by 9.8% compared to the erstwhile year. The sales of housing in terms of area during the period January-April this year saw a decrease of 20.2% year-on-year, while the number of constructions started decreased by 24.6%. The funds obtained by developers besides fell by 24.9% year-on-year. In April 2024, the area of fresh housing for sale was nearly 391 million square metres. The number of unsold apartments has remained at the highest level for 8 years.

It should besides be remembered that the real property sector is highly socially sensitive. With the cessation of construction work and the insolvency of developers, about 5 million people are at hazard of unemployment or a crucial income reduction.