The Chinese Communist authorities’ so-called “historic” measures to stabilize the crisis-ridden real estate industry have not only failed to promote the “sustainability” recovery of housing market demand and confidence but have also made investors more uneasy, leading to a decline in the stock prices of Chinese real estate listed companies on Monday, May 20.
According to Reuters, developer China Vanke initially rebounded by 6.4% in early trading but ended up falling by 0.2% at the close. Other companies such as Shimao Group, R&F Properties, Kaisa Group, and KWG Group all experienced significant drops of over 10%.
Additionally, the Hong Kong Hang Seng Mainland Real Estate Index closed down by 0.7% on the same day.
Last Friday, May 17, the Chinese Communist authorities introduced a series of new measures aimed at rescuing the troubled real estate market, including large-scale acquisition of excess housing, lowering the down payment for mortgage loans, and eliminating the interest rate floor for first and second homes.
In addition, the People’s Bank of China has set up a 300 billion yuan ($41.5 billion) re-lending facility for state-owned enterprises to purchase completed and unsold housing at “reasonable prices for subsidized housing”.
However, previous real estate measures introduced by the Chinese Communist Party have had minimal impact.
In early 2023, the Chinese government launched a 100-billion-yuan refinancing mechanism in eight pilot cities to purchase housing stock for rental subsidies. Official data shows that only around 2 billion yuan has been withdrawn as of January this year, highlighting a lack of market interest.
At its peak, the real estate industry accounted for a quarter of China’s GDP. Compared to the estimated value of tens of trillions of yuan in national housing inventory, the financing provided by the Chinese authorities is merely a drop in the bucket.
The latest official data shows that the area of new residential properties for sale in China from January to April was 391 million square meters, a 24% increase year-on-year, equivalent to 6.6 Manhattans. Tianfeng Securities estimates that purchasing all existing housing stock would cost about $1 trillion, equivalent to 78% of China’s budget deficit this year.
Reuters quotes economists from Macquarie Group predicting that based on the Chinese government’s previous statements, the goal was to absorb this inventory within 18 months. Now, that timeline has extended to 28 months, with an estimated cost of 2 trillion yuan to achieve this policy goal.
Local Chinese government debts amount to approximately $9 trillion, with some cities already bankrupt or on the verge of bankruptcy. They may be reluctant to expand low-return subsidized housing projects, and banks are also unwilling to lend to potentially loss-making enterprises.