China allocates billions of dollars to bailout its crisis-hit property sector

Beijing: After prolonged dithering, China has finally announced steps to address the near collapse of its mammoth property sector by allocating billions of dollars to buy back unsold homes and repurchase idle lands to resurrect its bankrupt real estate sector, which once constituted the mainstay of its economic growth.

The People's Bank of China has announced that it would establish a 300-billion-yuan (about USD 42.25 billion) relending facility for the government-subsidized housing project.

Local state-owned enterprises are encouraged to use the funds to buy reasonably-priced commercial homes that have completed construction, Tao Ling, deputy governor of the People's Bank of China, told the media last week. Tao added that these homes will then be used to provide affordable housing.

Also, as part of the government's increased financial efforts to support the property sector, commercial banks across the country issued a total of 963.6 billion yuan (about USD 137 billion) in real estate development loans followed by billions of yuan loans for individual housing loans in the first quarter of the year, state-run Xinhua news agency reported.

The newly set up fund will help developers to have access to financing and to encourage the repurchase of “idle” land and the “relending” funds will enable local state-owned enterprises to buy unsold homes they can then offer as affordable housing, according to Chinese media reports.

Besides being unusually large, China's property sector accounted for about a quarter of annual output of its economy and was highly connected to other parts of the Chinese economy.

The household wealth in China is also highly concentrated in property. Just as systemically important financial institutions had to be rescued to prevent a financial meltdown 16 years ago, major property developers in China may also be too interconnected to fail, according to a report in the Hong Kong-based South China Morning Post.

The Chinese property sector crisis, regarded as the most serious setback for the country's massive economy, sparked the default of the biggest property market developer Evergrande Group in 2021.

Evergrande has reported over USD 300 billion in liabilities. Earlier this year, a Hong Kong court ordered the liquidation of the company, sending ripples across China and the world.

Soon the crisis spread like wildfire with other real estate developers like Kaisa Group, Country Garden, Fantasia Holdings and a host of others declaring bankruptcy following millions of unsold and partly developed residential high-rises all over the country.

Analysts say it is unlikely that the decision of the Hong Kong court in January to liquidate Evergrande marks the end of China's property debt crisis.

As the property crisis became a major drag on the world's second largest economy, pinning its GDP to around five per cent with persisting slowdown, China last week finally moved to stem the crisis.

Besides the USD 42.25 billion fund, the government also announced measures to boost the property market, cutting minimum down payment ratios, setting up a relending facility for affordable housing and pledging to deliver unfinished homes.

The measures included minimum down payment ratios for individuals' commercial housing mortgages will be lowered to 15 per cent for first-home purchases and 25 per cent for second-home purchases.

"This is the lowest down payment requirement in history, which will be very helpful in boosting the property market," Yan Yuejin, research director at E-house China R&D Institute, told Xinhua.