Encouraging healthy growth of the real estate sector, which is vital to the economy

Image courtesy of Tang Tengfei/Global Times

Some foreign media have begun to throw cold water at China’s real estate sector, saying that the “housing crisis” is at the heart of China’s “economic woes” as more and more urban homebuyers become angry at some stalled or halted housing projects Places to “boycott are mortgage payments.” Some Western pundits even claim that the US-style subprime credit crisis of 2008 is likely to resurface in China.

But this Western media is seriously flawed by exaggerating China’s housing problems. Chinese banks often collect large down payments, typically 30 percent – suggesting that Chinese homebuyers could not afford to forfeit their mortgage contracts with the banks and that there will not be a massive US-style subprime collapse.

With the real estate sector making up a proportionate part of China’s economy — some estimate it at 20 percent of annual GDP — the slowdown in the real estate sector has drawn the attention of China’s policymakers as economists and officials become increasingly concerned that the ongoing stress Persistent ownership of the country market is likely to cause a cascade of ripple effects throughout the economic system.

Government statistics show that the slowdown in the real estate sector has already dragged down broader economic indicators such as fixed asset investment and retail sales of building materials, furniture and home electronics. Coupled with the temporary resurgence of COVID-19 in the country and its negative impact on household consumption, China’s economic activity slowed in the second quarter of this year, with GDP growing just 0.4 percent in the quarter.

From January to July, a total of 233 million square meters of new living space was completed, 22.7 percent less than in the previous year. House prices fell slightly in most of China’s Tier 2 and Tier 3 cities, with the national sales value of real estate reaching 7.57 trillion yuan in the first seven months, down 28.8 percent year on year , according to data from the National Bureau of Statistics. If house prices continue to fall, the real estate sector will pose a significant risk to this year’s economic growth.

However, a large number of Chinese communities have announced a series of measures to encourage home buying to speed up the sluggish real estate sector, which experts say will be useful in some regions to reduce inventories, but greater efforts are needed , to boost this demand for macroeconomic recovery.

In order to revive the sale of apartments, the government once again reached into its toolbox. On Aug. 22, the People’s Bank of China, the central bank, cut the benchmark five-year lending rate by 15 basis points from 4.45 percent to 4.3 percent, the biggest cut ever. It also lowered the interest rate on one-year loans, which is often used to determine corporate loans, from 3.7 percent to 3.65 percent. Analysts say the rate cuts will significantly reduce the cost of home mortgage repayments, as well as homebuilders’ borrowing costs.

And under the guidance of the central authorities, Chinese provincial and municipal governments have begun providing much-needed funds and bank loans to real estate developers so they can proceed with construction of unfinished condos, apartments and other dwellings and promptly deliver them to homebuyers.

In the coming months, Chinese lenders, most of which are state-owned giants and have ample funds, should continue to take the lead to sustain credit growth and meet the real estate sector’s financing needs. The recent significant cuts in banks’ mortgage rates underscore the authorities’ efforts to stabilize the real estate market.

China’s housing and banking regulators should also increase mandatory oversight of real estate developers, prohibiting them from diverting specially allocated loans or proceeds from homebuyers’ mortgage installments to other uses.

For example, the heavily indebted China Evergrande Group, which faces a restructuring after defaulting in 2021, has been found to have recklessly and blindly expanded into water bottling, electric vehicles and even buying a soccer team in Guangzhou, Guangdong Province. In the future, such illegal activities by real estate developers must be stopped, which should be put on the high agenda of all local governments.

In addition to providing credit to developers to ensure housing supply, the government must also stimulate the demand side of the market by lifting very strict restrictions on home purchases. The State Council has already decreed that city-specific policies be passed to boost home sales across the country.

As a result, many provincial capitals or Tier 2 and Tier 3 cities have significantly relaxed their rules on home buying and real estate investment. Some cities have moved to lower the down payment ratio to 20 to 30 percent from the previous 40 to 50 percent, with urban households with two to three children now being allowed to buy more than two condos. The majority of China’s growing middle class desires a more spacious home, and from an investment perspective, property remains a desirable form of suitable investment available to them.

Recently, more than a dozen Chinese cities have announced favorable policies to facilitate home community buying, including Changchun in northeast China’s Jilin Province, Taiyuan in north China’s Shanxi Province, Meizhou in southwest China’s Sichuan Province, Kunming in southwest China’s Yunnan Province and Lianyungang in east China’s Jiangsu Province. To improve home sales, some cities are offering discounts of up to 5 percent. Apparently, community buying activity is a sensible move to reduce inventories and boost home sales in the country.

The author is an editor at the Global Times. [email protected]

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