THE MEASURES AUTHORITIES announced on May 17 to revive China’s beleaguered property market are significant, but they may not be significant enough.
They include allowing (in the sense that every cadre will understand means ordering) local governments to buy land and unsold developments, and to build more public housing. The People’s Bank of China (PBOC) will set up a 300 billion yuan ($41.5 billion) fund to support affordable housing, which is what the unsold homes local government buy will become.
The minimum deposit for first-time homebuyers has fallen to 15% from 20%, and for second homes, it has dropped to 25% from 30%. The PBOC has also scrapped minimum mortgage rates.
The overhang of unfinished projects has cast a long shadow over the sector, which has been in financial gloom since 2021, when authorities curbed how much big real estate companies could borrow. The ensuing slump has weighed heavily on the economy for which it once accounted for one-quarter, sapping consumer confidence and undermining local government finances.
The 300 billion yuan fund is relatively small given the scale of the property market. How effective it will prove will depend on where the money gets put to use. The effectiveness of the overall package will also depend on how well local governments implement it.
Previous attempts to reverse the property slump have focused on making more money available for home lending but did not address the broader loss of confidence in the housing market. The new measures will signal authorities’ determination to reverse the slump in the hope that alone will encourage buyers back in, even if they are bargain-hunting speculative buyers initially, triggering a virtuous circle of sales, higher prices and recovering confidence.
If it works—and that’s still a big if—it will also shift part of the bailout cost from the government to homeowners; and if it does not, at least the government will not have thrown too much good money after bad.
China Bystander 