China introduces measures to address property market crisis

Chinese authorities have revealed the most significant measures yet to handle the crisis that has affected the nation’s property sector in recent years.

New Measures to Boost Home Buying and Affordable Housing

China has introduced new measures to address the ongoing crisis in its property market, which has significantly impacted the world’s second-largest economy. 

Key initiatives include reducing the deposit requirements for home buyers and encouraging local authorities to purchase unsold properties.

Financial Support for Affordable Housing

The People’s Bank of China (PBOC) announced the establishment of a 300 billion yuan ($41.5 billion; £32.8 billion) facility to support affordable housing. This fund aims to assist local state-owned enterprises in buying unsold homes, according to Tao Ling, a deputy governor at the central bank.

Local Government Involvement

Vice Premier He Lifeng emphasized the role of local governments in stabilizing the property market. He suggested that local authorities can purchase properties at “reasonable prices” and resell them as affordable housing. However, specific details regarding the number of properties or the duration of this initiative were not disclosed.

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Mortgage and Down Payment Adjustments

In an effort to stimulate the housing market, the PBOC has effectively scrapped the minimum mortgage rate and reduced the minimum down payment for first-home buyers from 20% to 15%. For second-home buyers, the minimum deposit has been lowered from 30% to 25%.

Falling Home Prices

Recent data revealed that new home prices in China have fallen for the tenth consecutive month in April, with a 0.6% month-on-month decline—the steepest drop since November 2014. This continuous decline underscores the severity of the market’s troubles.

Challenges for Developers

China’s property developers have been struggling since 2021 when the government imposed restrictions on the amount of borrowing by large real estate companies. These measures have led to significant financial difficulties, causing several large developers to default on their debts.

Country Garden and Evergrande

On Friday, Chinese developer Country Garden faced a hearing in a Hong Kong court regarding its potential liquidation, which was adjourned to June 11. Meanwhile, Evergrande, the world’s most indebted property developer, was ordered to be liquidated by a Hong Kong court in January.

Outlook

The Chinese government’s recent actions aim to stabilize the property market and mitigate the broader economic impact. 

By reducing barriers for home buyers and facilitating the purchase of unsold properties for affordable housing, these measures seek to rejuvenate the struggling sector. 

However, the long-term effectiveness of these initiatives remains to be seen as the property market continues to navigate significant financial challenges.