This Friday, China unveiled a battery of measures to revive its real estate market, an economic pillar that is suffering from a crisis that affects GDP growth. These include the possibility for local authorities to buy homes in areas with a lot of supply to stimulate demand, ending half-finished developments and a reduction in the down payment on mortgages and their rates. The idea is to reduce the mountain of unfinished and unsellable homes.
One of the major factors slowing down the Chinese economy is the crisis in the real estate sector, whose weight on the national GDP – adding indirect factors – was estimated at around 30%, according to some analysts. Since 2021, defaults have occurred among the developers, who have accumulated astronomical debts, which is why the authorities limited their capacity for new financing. The resulting distrust of potential buyers has reduced demand. The support measures of recent years have not managed to straighten the course of the real estate sector, so deeper steps are now being taken.
To spur the market local governments will be able to purchase homes at “reasonable” prices to provide affordable housing. They will also be able to buy back land sold to developers and complete stalled projects. It has not been detailed where the funds will come from or their amount. “It is a bold step. But how all local governments will have the financial capacity to deliver on the central mandate is an open question,” said Raymond Yeung, China economist at ANZ.
Separately, the central bank announced it would further reduce mortgage interest rates and down payment requirements to make purchases easier. The minimum down payment required by those who wish to purchase their first home is reduced from 20% to 15%, and from 30% to 25% for those who buy a second, as announced by the central bank.
This Friday, price data was released that shows the fastest fall in nine years, a sign of the worsening of a sector that continues to be a key drag on growth. New home prices fell 0.6% month-on-month for the tenth consecutive month in April, the worst figure since November 2014.
China has an inventory of 1.72 trillion euros in housing to be sold, and since some are unfinished, about 640,000 million are needed to finish them, according to calculations by Goldamn Sachs.
Recent statistics show a very gray picture. Real estate investment until April falls 9.8% year-on-year; property sales by area 20.2%; the starts of new constructions fell by 24.6%, and the funds raised by developers fell by 24.9%. Of 70 large cities, prices fall in 64. “The adjustment of the sector is not over yet. The market will take time to recover,” says Guan Xuerong, chief analyst at the Zhuge Real Estate Data Research Center.