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In a big boost for China’s property market, the authorities have announced debt relief and extended economic aid. The People’s Bank of China (PBOC) and the National Financial Regulatory Administration (NFRA) stated that they aim to ensure the delivery of all unfinished properties. They asked the financial institutions to boost economic support to avoid any additional delays in such projects.
The authorities also announced a one-year repayment extension for several outstanding loans including trust loans due by the end of 2024. This is an extension to the 16-point plan unveiled in November 2022 where the repayment relief was only applicable to loans due by late May 2023. The PBOC and NFRA also emphasised that project-based special loans sanctioned to developers by commercial banks, by the end of 2024, would not be classified as higher risk.
The worsening property crisis in China
China’s property market has been going through a slump for the past two years. Developers are grappling with issues like high debt, payment defaults, and dwindling home sales. The three-year-long battle with the pandemic has also made matters worse for China’s property market. According to Bloomberg, Chinese developers have outstanding bonds of about 2.9 tn yuan ($401 bn) on their balance sheet, currently. Nearly 1 tn yuan of these debts are due within one year and a maturity wall is expected in the third quarter.
Analysts have warned that the situation would continue in 2023, but with slight improvement. According to S&P, China developer sales would drop by about 3% to 5%, slightly better than the previously forecast 5% to 8% drop. Meanwhile, Goldman Sachs said, “We only assume an ‘L-shaped’ recovery in the property sector in coming years… Based on our estimates, the property weakness will likely be a multi-year growth drag for China, but it could be less painful in 2023 than in 2022.”
Slew of real estate-revival measures unveiled by China
Besides serious property market concerns, the Chinese economy is suffering due to sluggish consumer spending, flagging exports, and high local government debt. The economic support measures and debt rescheduling programmes are key steps in pulling China’s property market from the crisis. These measures are not just intended to relieve the developers but also to boost consumer confidence and revive home sales. Some of the measures already announced by the Chinese authorities include:
- Reduced mortgage rates for first-home buyers if newly constructed house prices decline for three consecutive months.
- A nationwide cap on property agent commissions to boost demand.
- Approval of private equity funds to raise capital for residential property developments.
- Sanction of special loans worth 200 bn yuan ($28 bn) to ensure delivery of the stalled housing projects.
- Roll out of a 100 bn yuan ($13.8 bn) loan support plan to boost rental housing supply in cities.
Some of the other measures included allowing housing developers to extend loans and bonds due in the next six months by up to 12 months. The financing measures were also intended to enable stronger players to acquire unfinished projects from weaker developers. Another aim was to allow developers to purchase more land to expand construction.
The path for the China property market ahead
The property sector in China plays a huge role for the economy since it accounts for one-fifth of its GDP. Addressing the real-estate issues in China, Vice-Premier Liu He at the Davos World Economic Forum in January stated, “It accounts for nearly 40% of bank lending, 50% of overall local government fiscal resources, and 60% of urban household assets. If not handled properly, risks in the housing sector are likely to trigger systemic risks.”
Analysts expect China to roll out new measures on the demand side to restore stability in the property market. “We believe the policy priority is to manage the multi-year slowdown rather than to engineer an upcycle”, said Goldman Sachs. Some analysts also believe that China also needs to unveil measures to generate more housing demand in the near term, including raising the average salary of workers, easing purchase thresholds, or reducing the down-payment ratio for homebuyers.
As per Matthews Asia’s investment strategist Andy Rothman, has bounced back better than he had expected. “But, investors should anticipate that the road to rehabilitation will continue to have peaks and valleys, and that periods of softer data will lead some to prematurely proclaim the end of the recovery process.”
