For the past two years, many Chinese developers have successively faced debt crises, plunging the Chinese real estate market into turmoil. On Friday (May 17th), the Chinese authorities announced a series of new measures to rescue the housing market, including the cancellation of the lower limit on personal housing loan interest rates and the requirement for local governments to purchase unsold properties to reduce housing inventory.
The Chinese National Bureau of Statistics released multiple economic data for April on Friday, showing that both new and second-hand housing prices in first-tier cities experienced a comprehensive decline in April. The price of new homes saw the fastest drop in over nine years.
Meanwhile, real estate investment in the first four months of 2024 saw a year-on-year decrease of 9.8%, with real estate sales volume calculated by floor area dropping by 20.2% from January to April, and new construction area decreasing by 24.6%. Funds raised by developers also saw a 24.9% year-on-year decline, highlighting the worsening real estate crisis in China.
During its peak, the real estate industry was a major pillar of the Chinese economy, but now it has become a primary obstacle to economic recovery. Over the past two years, the Chinese government has implemented waves of support measures, but none have been able to reverse the downward trend of the housing market.
Chinese Vice Premier He Lifeng stated at the “National Conference on Doing Well in Ensuring Housing Delivery” that in cities with excessive housing inventory, the government could purchase some unsold properties at “reasonable prices” to stabilize housing prices. He mentioned that these houses would be used for affordable housing but did not provide a timetable or specific details on funding sources for the purchases.
This measure may further exacerbate the debt issues of Chinese local governments. Previously, Guotai Junan Securities estimated that to deplete inventory within 18 months, the Chinese government would need to spend at least 7 trillion RMB. However, currently, Chinese local governments already have high levels of debt, around 9 trillion USD.
He Lifeng also stated that local governments should “properly handle idle residential land already sold through means such as retraction or acquisition to help financially troubled real estate companies.”
Additionally, the People’s Bank of China announced the removal of the lower limit on mortgage interest rates and a reduction in down payment ratios.
The central bank stated that it would eliminate the policy lower limit on commercial individual mortgage interest rates for first-time and second-time homebuyers nationwide. It also lowered down payment ratios, requiring a minimum down payment ratio of not less than 15% for the first home and 25% for the second home.
Goldman Sachs estimated that as of the end of 2023, the value of unsold housing inventory in China was 13.5 trillion RMB (approximately 1.87 trillion USD). Due to some properties still under construction, an additional 5 trillion RMB would be needed to complete them.
An executive of a defaulting developer in Shanghai told Reuters, “Psychologically, this would make investors think the government is ‘picking up the tab,’ shifting the risk from real estate companies to banks and local governments.”
Previously, Chinese authorities encouraged people to “exchange old for new,” swapping old houses for new ones. However, the public’s interest in purchasing second-hand homes was very limited, causing the plan to progress slowly with minimal effect.
According to official Chinese data, in 70 large and medium-sized cities, prices in 64 cities fell last month, surpassing the 57 cities in March.
Guan Xuerong, an analyst at Zhuge Housing Data Research Center, stated, “Continuous price drops will intensify the cautious sentiment of homebuyers.”
“The industry’s adjustment is not yet complete. It will take time for the market to recover,” Guan said to Reuters.