China Is Finally Getting Serious About a Housing Rescue
Beijing announces plan to clear backlog of unsold homes, but questions remain over scale and financing
China rolled out its boldest steps yet to fix its broken housing market, as Beijing sought to finally bring to an end a drawn-out real-estate crunch that has hobbled its economy for years.
The centerpiece of Friday’s measures is Beijing’s embrace of a policy already being tested in some cities in China—getting city and local authorities to buy up unsold homes and convert them into affordable housing for low- and middle-income families.
The package also includes scrapping minimum interest rates on mortgages and reducing required down payments for would-be home buyers.
These measures signal “the beginning of the end of China’s housing crisis,” said Ting Lu, chief China economist at investment bank Nomura.
Chinese property stocks surged on Friday. Shares of real-estate giant Sunac China jumped 26% while Hong Kong-listed shares of China Vanke rose 19%.
Once valued at twice the size of the U.S. residential market, China’s property sector is in free fall. Sales have crumbled and construction has ground to a near-halt.
Since the start of the downturn, more than 50 developers, including once-vaunted giants such as China Evergrande Group and Country Garden, have defaulted on their international debts. About 500,000 people have lost their jobs, according to Keyan, a private think tank based in Shanghai.
By stepping in as a buyer of last resort for millions of properties, the government is seeking to bail out failed developments, mop up housing inventory and persuade spooked buyers to re-enter the market.
The broader hope is that stopping the rot in the property market will get Chinese consumers spending again, lifting the overall economy. New data Friday showed retail sales slowed last month and property investment tumbled almost 10% year over year. Chinese leaders have been turning to manufacturing and exports to power growth, but that has been aggravating trade tensions with the rest of the world.
The Wall Street Journal reported in February that China was considering buying up distressed property and converting it into affordable homes, among other policy options for fixing the property market.
Still, the scale of the program—and where cities and cash-strapped local governments will get the funding to pay for it—isn’t clear. Economists estimate clearing the enormous backlog of empty or unfinished homes dotting China will cost hundreds of billions of dollars. Only the central government in Beijing or the People’s Bank of China would have the necessary resources to finance a nationwide expansion of the home-buying plan, they say.
China has announced plans to issue billions of dollars worth of long-dated bonds, though it hasn’t specifically said the proceeds will be steered toward real estate. The central bank on Friday announced a so-called relending program that will funnel 300 billion yuan, equivalent to around $41 billion, in funding to banks to support home purchases by state-owned firms, though that sum falls far short of what economists say is required.
Friday’s package follows a flurry of measures last year that included interest-rate cuts and tweaks to property-purchase rules, none of which sparked a lasting turnaround in real estate.
Economists say clearing the backlog of unsold homes and finishing stalled projects is essential to easing China’s property woes and reigniting beaten-down consumer and business confidence.
Arthur Budaghyan, chief emerging markets strategist at BCA Research in Montreal, said he thinks an even larger sum will need to be pumped into distressed real estate—at least 5 trillion yuan—to have a meaningful effect on the wider economy. And it will need to be spent quickly, he said, not dribbled out over three to five years. “The problem is how much, when and how fast,” he said.
China on Friday sold the first batch of a planned 1 trillion yuan of ultralong bonds, which the government said will be spent on supporting the economy and funding strategic projects.
Carlos Casanova, senior Asia economist at Union Bancaire Privée in Hong Kong, said he expects some of the funds will be channeled to local governments to finance the home-buying plan. He said buying up unsold homes won’t lead to a revival in China’s real-estate market overnight. But he said it should persuade households that the worst is over and that sales and prices should start to pick up. “They just need to know there’s light at the end of the tunnel,” he said.
New figures Friday showed how distant that prospect still appears. Average new-home prices fell 0.58% in April from March, the largest monthly drop in 10 years, China’s National Bureau of Statistics said. Property investment declined 9.8% from a year earlier in the first four months of the year, widening a 9.5% drop recorded in the first quarter, according to data released by the statistics bureau.
The real-estate rescue plan comes as other data Friday showed China’s economy becoming even more lopsided and reliant on industry to power growth as the property downturn weighs on consumption.
Retail sales in China rose 2.3% in April compared with a year earlier, China’s National Bureau of Statistics said Friday, a slowdown from the 3.1% recorded in March and weaker than the 4% growth forecast by economists polled by The Wall Street Journal.
The fallback reflected weaker spending on cars and home appliances, data showed, despite a government effort to encourage people to trade in old products for new ones.
Consumers are still showing a preference for saving a lot, said Tencent President Martin Lau when he was asked about the technology firm’s wealth management business on an earnings call this week. That trend has been reflected in inflows into money-market funds, which invest in short-term debt securities. “There is a reduced willingness for consumers to spend,” he said.
China’s industrial sector recorded a much better performance last month, with industrial production rising 6.7% year over year, accelerating from 4.5% in March.
With its property sector crippled and consumer spending in the doldrums, China has turned to manufacturing to give its economy a lift. Loans have poured into factories, and especially those in favored sectors such as electric vehicles, batteries and renewable energy equipment.
But weak spending at home means those goods are increasingly being shipped overseas at low prices, aided by a weak currency.
President Biden this week announced new tariffs on around $18 billion of Chinese imports, saying Chinese subsidies and other unfair trade practices threaten American jobs. The measures include raising tariffs on Chinese-made electric vehicles to 100%, effectively locking them out of the lucrative U.S. market.
China says such moves are protectionist and reflect the US’s dwindling competitiveness in key industries.