Following the release of new statistics indicating that house prices have fallen by about 10% since the year’s beginning, China announced a slew of new initiatives on Friday aimed at revitalizing its flagging real estate sector.
The central bank announced plans to lower the minimum mortgage down payment and do away with the floor on interest rates for first- and second-home purchases, among other things.
Following a crackdown on excessive borrowing by real estate developers a few years ago, China’s housing market collapsed, pulling down growth in the No. 2 economy in the world and affecting a wide range of other industries, including construction, appliances, and home furnishings.
Numerous developers who have revolutionized China’s urban environments with their hordes of high-rise residences have fallen behind on their bills. Many incomplete projects have just paused.
Vice Premier He Lifeng stated that officials would “fight the tough battle of dealing with the risk of unfinished commercial housing” by implementing laws tailored to each city.
At a high-level teleconference on property policies, He stated, “We will solidly advance key tasks such as guaranteed housing delivery and absorption of existing commercial housing,” according to the official Xinhua News Agency.
At a time when developers are finding it difficult to produce housing that has already been promised and paid for, efforts to encourage more families to purchase homes have gained speed after previous strategies like interest rate reductions and government-backed financing failed to get purchasers into the market.
Due to the cheap interest rates that banks offer, housing is a staple investment for Chinese investors. However, many would-be buyers may be holding out for the market to bottom out before making any fresh purchases.
In addition, many people are cautious about their expenditures due to job losses and other pandemic-related disruptions.
The People’s Bank of China announced on Saturday that the interest rate on first-time housing provident fund loans for less than five years will be reduced by 0.25 percentage points to 2.35%.
Loans with a term longer than five years now have a rate of 2.85%, down 0.25 percentage points. 15% of the purchase price will be the minimum down payment required for loans for first-time houses. It will be 25% for second residences.
According to a report by Chen Wenjing of China Index Holdings, a Nasdaq-listed company that specializes in providing data about China’s real estate market, the latest efforts demonstrate Chinese leaders’ determination to stabilize the real estate market.
These efforts have resulted in historically low down payment levels and mortgage interest rates.
“Reducing residents’ down payment requirements and closing costs will probably increase their inclination to purchase homes,” Chen predicted.
Major towns taking similar action will probably boost market sentiment even further, he predicted.
Dong Jianguo, vice minister of housing and urban-rural development, stated that officials should concentrate on making sure home buyers receive what they paid for, and that the courts may need to get involved when that is not possible.
“Protecting the legitimate rights and interests of homebuyers should also be a top priority in judicial proceedings,” Dong stated at a Beijing press conference.
The National Bureau of Statistics acknowledged earlier on Friday that domestic demand, or consumer and business spending, remained “insufficient.”
They also stated that the government was looking into additional strategies to boost the real estate sector after housing prices fell 9.8% between January and April of last year compared to the same period the previous year.
The current external environment is becoming much more complex, severe, and unclear. A spokeswoman for the bureau named Liu Aihua stated, “There are numerous risks and hidden dangers, high business pressure, and insufficient effective domestic demand.”
According to Liu, “the recovery’s foundation needs to be strengthened.”
One of the main tactics being implemented is local governments purchasing unsold units as a result of low demand, to be rented out as cheap housing in experimental programs that seem to have become national policy.
The central bank announced that it is creating a 300 billion yuan ($42 billion) fund to finance state-run businesses’ and local governments’ purchases of vacant property for use as affordable housing as part of the most recent policy easing.
Although China’s economy expanded at a strong 5.3% pace in the first quarter of this year, it is still a developing country, and there have been persistent symptoms of weakening.
According to a National Bureau of Statistics report released on Friday, industry output increased 6.7% in April compared to the same month last year, while investments in fixed assets, such as manufacturing equipment, increased 4.2%.
However, sales as determined by floor area decreased 20% and new starts decreased by nearly 25% year over year. Real estate project financing dropped by 25%.
The April increase in retail sales was only 2.3%.
Government programs encouraging households to sell their old cars and appliances and purchase new ones are likely to boost demand, according to officials.
