China has announced plans to nearly double credit support for a selected group of housing projects to tackle its struggling property sector.
As Arbiterz earlier reported, the country’s massive real estate sector, which is worth around $130.70tn or 29% of its GDP, experienced severe strain, with major developers failing and millions of houses uncompleted or unsold.
The country has now injected Rmb4tn ($562bn) into the market. This expansion is part of the government’s broader strategy to stabilize the economy and address the prolonged property slowdown.
Expanded Credit for Projects
Earlier this year, China introduced a “list” of housing projects and developers eligible for financial support from local and state-owned banks.
Housing Minister Ni Hong revealed that Rmb2.2tn in loans had already been approved for these projects in 2024.
The new infusion of Rmb4tn is expected to be fully deployed by the end of the year, helping developers complete unfinished projects.
“We can definitely win this battle to ensure the delivery of housing,” Ni stated at a press conference in Beijing on Thursday.
Earlier in the year, the country was hit hard when PWC China approved real estate company Evergrande’s account despite its inflated revenue numbers.
The Evergrande crisis led to economic repercussions as construction projects were halted, homebuyers were left in limbo, and creditors scrambled to recover their investments.
With this list, the government has probably condoned a background check showing that the listed companies can carry out these projects and pay back without room for disappointment.
Economic Stimulus Amid Property Slowdown
The Chinese economy has been grappling with a severe property downturn and weak consumer demand, prompting calls for more aggressive fiscal stimulus.
In recent months, the government has rolled out measures to support the housing sector, including reducing borrowing costs and easing restrictions on second-home purchases. These efforts, coupled with initiatives to boost the stock market, have raised hopes of a more substantial intervention.
The initiative made the financial market respond positively, with Expana citing that the Shangai Composite Stock Index rose by 13% two weeks after the announcement.
The People’s Bank of China Governor Pan Gongsheng then announced a reduction of the interest rate on existing mortgages and fixed the minimum deposit on homes to 15% of the value of the property, a 10% reduction.
Investor Confidence Wavers
Despite the large-scale financial support, shares of Chinese property developers listed in Hong Kong fell sharply on Thursday.
The Hang Seng Mainland Properties index dropped 6.7%, signalling that investors remain cautious about the effectiveness of the new credit measures.
Zerlina Zeng, head of Asia credit strategy at CreditSights, warned that banks may still be hesitant to provide additional funding due to ongoing credit risks associated with incomplete projects. She added that much of the funds lent under the program have been used for refinancing existing debt.
Restoring Homebuyer Confidence
Despite investor concerns, some analysts are optimistic that the new credit support will expedite project completions and restore homebuyer confidence. Jeff Zhang, an analyst at Morningstar, expects distressed developers to receive critical funds, helping to stabilize the market.
China’s housing sector is primarily driven by pre-construction sales, but there has been a shift toward existing properties this year due to rising concerns about developers’ financial health. The housing minister noted that there has been a clear increase in viewings and purchases of new homes since the end of September.
The Road Ahead for China’s Property Sector
New home prices fell 5.3% across major cities in August, marking the fastest decline in nine years, according to Reuters calculations. This drop highlights the challenges facing the property sector and the urgency for effective intervention to prevent further economic damage.
While the $562 billion credit boost represents an effort to revitalize the market, its long-term impact remains uncertain.
Investors and analysts will be closely watching how these funds are allocated and whether they can effectively restore confidence in China’s property market.
