Beijing Invests US$42bn to Revive Struggling Real Estate Sector, but Analysts Warn Insufficient

• 29 May 2024
• International News
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In a bold move to stabilise the struggling property market, the People’s Bank of China (PBOC) is establishing a nationwide program offering a staggering 300 billion yuan (US$41.5 billion) in loans, as reported by CNN, 17 May 2024.

Industry experts estimate this initial injection could ultimately translate into 500 billion yuan (US$69 billion) worth of credit. This significant financial stimulus aims to empower local governments across the country to purchase unsold homes from cash-strapped developers. These acquired properties will then be converted into affordable social housing, offering much-needed relief for residents seeking entry into the housing market.

The announcement marks a potential turning point for the crucial sector that once fuelled a significant portion of the nation’s economic growth.  However, the ongoing slump in sales and investment necessitates a multifaceted approach.

The measure has been met with cautious optimism within the industry.  “The move to buy unsold homes is positive for the industry,” commented Larry Hu, Chief China Economist at Macquarie Group. However, concerns remain regarding the specifics of the plan, particularly the long-term funding strategy.  China’s local governments are already burdened with substantial debt, raising questions about their capacity to manage these additional expenditures.

China Real Estate Business, a newspaper run by the country’s housing ministry, described the measures as “heavyweight policies” that marked a “significant historic moment” for the real estate sector.

The Friday 17 May announcement comes amidst a continued downturn in the property sector.  Data released the same day revealed a deepening crisis, with property investment declining 9.8% in the first four months of 2024 compared to the same period last year.  New property sales also plunged a staggering 28.3% during this period, further highlighting the urgency for intervention.  Home prices have also fallen for the tenth consecutive month, marking the steepest decline since November 2014.

The government’s intervention extends beyond local government purchases.  The PBOC has implemented a series of additional measures designed to stimulate the housing market.  These include:

1. Granting banks greater flexibility in setting mortgage rates, effectively removing the nationwide minimum.
2. Reducing the minimum down payment requirement for first-time homebuyers to 15% and 25% for second-time buyers.
3. Lowering interest rates for housing provident fund loans by 0.25 percentage points.

These combined efforts represent a comprehensive response to the ongoing property crisis.  While the long-term effectiveness remains to be seen, the immediate impact has been positive, with Chinese stocks experiencing a surge in investor confidence.  The success of these measures will be closely monitored in the coming months to gauge their impact on stabilising the property market and fostering a more sustainable path for China’s economic growth.

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