Beijing announces $127 billion to save Chinese bricks | Economy

The Chinese government, increasingly concerned about brick’s negative impact on the country’s economic growth, is redoubling its offensive. Beijing has launched its most drastic plan to date to rescue a property market besieged for years by high levels of developer debt and a huge imbalance between supply and demand. The authorities of the Asian giant unveiled a series of measures last Friday to attract financing worth up to one trillion yuan (about 127.2 billion euros). The initiative includes easing mortgage lending rules and a loan restructuring program. In addition, local governments were called upon to buy undeveloped land and unsold houses.

Beijing says the “significant policy” marks an “important historical moment” for the industry. However, investors were hoping for stronger government intervention to offset declining demand; and most analysts agree that the funding announced is only a fraction of what will be needed to revive the battered sector.

As part of the relief package, the People’s Bank of China (PBOC, the central bank) announced that it would open a credit line of 300 billion yuan (about 38 billion euros) to support “government-subsidized housing projects.” The goal is to encourage Beijing-backed state-owned companies to buy “reasonably priced” houses that have already been built so that they can later become “affordable housing,” as BPC itself said at a press conference.

Tao Ling, deputy governor of the central bank, said the loan restructuring funds will be offered to 21 domestic lenders (development banks, state-owned commercial banks and mixed capital banks) at an interest rate of 1.75%. Thus, BPC intends to encourage financial institutions to expand lending to some regional state-owned companies in order to support their purchase of finished houses that real estate agencies have not yet managed to sell. It is estimated that the total loan volume for this program could reach 500 billion yuan (about 63.6 billion euros), but this figure is lower than expected. Analysts estimate the required funding to range from one to five trillion yuan (127,000 to 636,300 million euros).

In addition, the PBOC could provide another 500 billion yuan in additional credit line to support government policies, including the redevelopment of some old property areas. At this time, the authorities have not published any estimates of the total cost of public housing procurement.

In addition to the loan restructuring program, Beijing announced it would cut the entry fees required to purchase real estate to historic lows. For first-time home buyers, the down payment has been reduced from 20% to 15%; while for those who buy a second one, the reduction will be between 30% and 25%, the lowest level since Chinese banks began issuing mortgages in 1992. However, the decision will be up to each city to maintain or adjust mortgage rates. according to local situation.

The set of new measures reflects the authorities’ determination to save the real estate sector, which accounts for about a quarter of the country’s GDP and has become one of the main factors slowing the Chinese economy. The dark clouds began in 2021 when many companies in the sector began to experience liquidity problems due to restrictions Beijing placed on their ability to finance themselves with debt. Distrust in potential buyers has led to a market slowdown and a worrying collapse in prices, as housing is a key investment vehicle for Chinese families.

House prices recorded their biggest monthly fall in a decade in April, while property investment fell 9.8% year-on-year in the first four months of 2024, official data showed. Chinese Vice Premier He Lifeng stressed on Friday the importance of the real estate sector to economic development and the need to promote affordable housing projects, urban renewal and public infrastructure. He also stressed the need to “continue the fight” to “overcome the risks associated with unfinished and unfinished housing.”

“Local governments should return or properly purchase residential land, as appropriate, to help alleviate pressure on struggling developers,” the deputy prime minister said during an internal meeting, the words of which were recorded by the state. Xinhua News Agency. “The health of the real estate market is closely linked to social well-being and economic development,” he added.

In recent months, the authorities have announced various support measures: state banks have opened multi-million dollar lines of credit to various developers, whose priority goal was the construction and delivery of properties sold off-plan.

Analysts at consultancy Trivium believe that “500 billion yuan is not enough to absorb all the unsold supply in China.” However, they note that “they will make a significant contribution to stabilizing prices in many cities.” “Hopefully, buyers will return to the market once prices normalize and will be further encouraged by cheaper loans and lower down payments,” they add.

Many experts say the new policy underscores Chinese President Xi Jinping’s determination to get the planet’s second-largest economy back on track and marks a new stage in Beijing’s stance on private property, seven years after the Chinese leader said “homes are meant to be for living.” , and not for speculation.” “These radical measures show that the central government is no longer willing to tolerate a downturn in the real estate market,” Trivium emphasizes.

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