quick look
- Developers need about four trillion yuan to complete pre-sold homes, highlighting significant financing challenges.
- Chinese banks have provided 469 billion yuan of credit to help complete homes, but this is insufficient for the total needs.
- An L-shaped recovery is expected, with no quick recovery in sight as the market continues to struggle.
- Plans to expand public housing from five percent to 30 percent of the total stock, which could stabilize the market.
- Some cities have eased restrictions on home purchases, but the market response remains tepid, with real estate stocks down 2%.
China's real estate market, a critical driver of the country's economy, is currently in choppy waters with a major financial vacuum. Developers are scrambling to raise the nearly four trillion yuan (£553bn) needed to complete pre-sold homes, a symbolic figure that highlights the stark financing challenges in the sector. This huge amount underscores the gap between current resources and what is required to meet obligations to homebuyers.
£68bn in credit: not enough for China's property problems
In response to the looming crises, Chinese banks have extended a lifeline in the form of credit support worth 469 billion yuan until the end of March. This financial assistance aims to ensure completion of house construction, and provide some relief to developers suffering from liquidity problems. However, this is only a drop in the ocean compared to the needs depicted by the staggering total required.
The crisis continues: is it an L-shaped recovery?
China's real estate crisis shows no signs of abating. The effect of previous market stabilization measures is fading. Funding conditions remain tense, and political measures are weak. Experts now expect an L-shaped recovery path. This indicates that the market has not yet reached its bottom, and a quick recovery is unlikely. As a result, this continuing contraction has given rise to calls for increased government intervention. These measures would improve financing conditions for developers, normalize demand for housing, and prevent further contraction in the real estate construction sector.
Fixing housing oversupply: a £1.1 trillion bill
Compounding the financial problems is the cost of reducing the oversupply of housing in small towns. This cost is estimated at 7.7 trillion yuan, assuming 50 percent purchase at market prices. Specifically, this spending is aimed at returning inventory levels to the more sustainable numbers seen in 2018. Indeed, this massive undertaking underscores the seriousness of the housing glut issue.
Huge public housing scheme: up to £864bn
In an ambitious move, the government plans to significantly increase the share of public housing in the national housing stock from around five per cent to at least 30 per cent. This transformation, especially in major cities, may involve costs ranging between four trillion and six trillion yuan. Such a significant increase in public housing could also provide a much-needed buffer against private market fluctuations and support social stability.
The ice of modest politics has thawed, and the market remains cold
On the policy front, recent weeks have seen a modest dissolving of restrictions. Fifteen cities, including Beijing and Guangzhou, have relaxed their mortgage rate limits and home loan policies. This relaxation may boost home purchasing capabilities by up to 400,000 yuan in some cases. It may also stimulate buyer interest locally.
Despite these efforts, the immediate market response was lukewarm. The recent 2% decline in real estate stocks in China is testimony to the latter. Moreover, the 28 percent decline over the year is a stark indicator of ongoing investor concerns.
Handle structural challenges with caution
As Ding Zuyu, CEO of E-House China Enterprise Holdings Ltd, pointed out in his analysis of the situation, the easing of home purchase policies in major cities may pave the way for similar easing across the country, which may spark some optimism about the recovery. . However, the first quarter showed that expectations of a real estate market recovery were premature.
China's real estate sector is at a critical juncture, facing enormous challenges but also potential paths that could lead to recovery. The extent and effectiveness of policy measures going forward will be crucial in shaping the market's trajectory. The stability of the sector is essential to the economic health and social well-being of millions of Chinese families.
