
China has recently announced measures to tackle the severe crisis in its property sector. The government has allocated billions of dollars to repurchase unsold homes and idle lands in an effort to revive the bankrupt real estate sector, which has historically been a key driver of economic growth in China. The People’s Bank of China has established a 300-billion-yuan (approximately USD 42.25 billion) relending facility specifically for government-subsidized housing projects.
Government Initiatives to Support the Property Sector
As part of the government’s increased financial support for the property sector, commercial banks throughout the country have issued a significant amount of loans for real estate development and individual housing. In the first quarter of the year, a total of 963.6 billion yuan (about USD 137 billion) in real estate development loans were issued by commercial banks, with additional loans provided for individual housing.
Focus on Affordable Housing and Repurchasing “Idle” Land
To encourage the recovery of the property sector, local state-owned enterprises are encouraged to use the allocated funds to purchase reasonably-priced commercial homes that have already been completed. These homes will then be used to provide affordable housing, according to Tao Ling, deputy governor of the People’s Bank of China. The newly established fund aims to facilitate developers’ access to financing and to incentivize the repurchase of “idle” land. Chinese media reports suggest that the “relending” funds will enable local state-owned enterprises to purchase unsold homes, which can then be offered as affordable housing options.
Significance of the Property Sector in China
China’s property sector has played a crucial role in the country’s economy, accounting for approximately a quarter of its annual output. It is closely interconnected with other sectors of the Chinese economy. Additionally, a significant portion of household wealth in China is concentrated in property. Given the sector’s systemic importance, some experts argue that major property developers in China may be considered “too interconnected to fail.”
The Evergrande Crisis and Subsequent Developments
The property sector crisis in China reached a critical point with the default of Evergrande Group, the largest property market developer, in 2021. Evergrande reported over USD 300 billion in liabilities and, earlier this year, a Hong Kong court ordered the liquidation of the company. This event had significant repercussions throughout China and the world, leading to other real estate developers, such as Kaisa Group, Country Garden, and Fantasia Holdings, declaring bankruptcy due to millions of unsold and partly developed residential high-rises across the country.
China’s Response to the Crisis
Recognizing the impact of the property crisis on its economy, China has finally taken steps to address the situation. In addition to the USD 42.25 billion fund established for the property sector, the government has announced various measures to boost the market. These include reducing minimum down payment ratios for individuals’ commercial housing mortgages, setting up a relending facility for affordable housing, and committing to completing unfinished homes. The lowered down payment requirements, in particular, are seen as the lowest in history and are expected to have a positive impact on the property market, according to experts.