China announced this Thursday new measures in a new attempt to revitalize the real estate sector, which would have “hit rock bottom”, according to the authorities, after three years of serious crisis in an industry that has a weight of around 30% in the second economy in the world.
The Government advanced an expansion of its financing program for real estate projects, which will reach US$562 billion by the end of 2024, although some experts point out that more measures are needed to reactivate the sector.
He Housing Minister Ni Hong detailed today that the aforementioned expansion will allow promoters to conclude their ongoing works through greater access to credit, with the condition that the funds are not used to pay off previous debts.
The Chinese Executive will also allow local authorities to use special funds to acquire unsold properties and land, seeking to reactivate a sector that, according to the minister, “has hit rock bottom” and from which a slow recovery is expected after having become a major factor in the slowdown of the Chinese economy in recent years.
A prolonged crisis in China’s real estate sector
The main problems for Chinese real estate companies began in 2021when Beijing imposed limitations on its ability to finance itself via leverage. Evergrande, the largest promoter in China, then had a liabilities exceeding US$300 billion.
The resulting distrust of potential buyers caused a slowdown in the market and a worrying drop in prices, in a country where homes are one of the main investment vehicles for families.
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In August, new home prices in 70 Chinese cities fell 5.3% year-on-year, in the fifteenth consecutive month of decline. This indicator has already fallen one 24,3% in 2022 and another 8,5% in 2023.
The main objective of regulators right now is “provide support without overheating the market”, said economist Xu Tianchen, quoted today by the Hong Kong newspaper South China Morning Post, adding that the authorities seek to “mitigate financial risks and stabilize prices.”
Long list of measurements
It is not the first time that the authorities have tried to shore up the battered sector.
In recent years, both central and local governments have tried to make home purchases easier. reducing entry fees to acquire apartments, increasing the number of people who can be considered first-home buyers or boosting financing for developers in trouble.
However, the measures of recent months have not achieved the desired effect. Analyst Raymond Cheng, quoted by the Hong Kong newspaper, assured that the easing of some restrictions “should have an immediate effect of improving market sentiment,” but the Chinese market “is not normal at present.”
In fact, the Real Estate subindex The main index of the Hong Kong Stock Exchange fell 2.92% today despite the Government’s announcements.
The expert recently pointed out that “more flexibility measures are needed,” such as the “reduction in mortgage rates, high in big cities.”
For his part, Xu predicted that, since developers are still “under financial stress” and policies “focus on controlling new supply,” home sales “will continue at a slow pace.”
Failed investments
On Chinese social networks, they have been abundant for a year testimonials of financial losses or lack of progress in the construction of purchased homes.
A couple this year accumulated hundreds of thousands of followers on the Douyin social network by recounting their odyssey after buying an off-plan apartment in the central city of Zhengzhou.
First, they faced a salary cut which made it difficult for them to face the payments and, later, the financial difficulties of the real estate company, which stopped construction of the apartment block.
Millions of Internet users identified with the story of the young couple, in a context of the slowdown of the Chinese economy and salary cuts in several sectors.
The crisis has also been felt in the stock market: the Real Estate subindex of the Hong Kong Stock Exchange accumulates loss of 44% in the last three years.
