China acts to cut housing crisis with historic bailout package
China has embarked on an unprecedented endeavor. Xi Jinping has taken significant steps to address the real estate crisis by introducing a comprehensive bailout package. Beijing is removing the lower limit on mortgage rates and reducing down payments, and the central bank is preparing $42 billion to purchase empty apartments.
2:54 PM EDT, May 17, 2024
"China is trying to end the real estate market crisis with a broad bailout package," writes "Bloomberg" on Friday. Among the measures are eliminating the lower limit on mortgage interest rates, lowering the required down payment, and the People's Bank of China preparing $42 billion to purchase unsold homes, which will later function as social housing.
China launches a credit bomb. such a bailout package has never been seen before
"The support package also includes lower down payment requirements for homebuyers and 300 billion yuan ($42 billion) in financing from the central bank to help government-supported firms purchase excess unsold homes from developers. These properties would then be converted into social housing," reports "Bloomberg."
The newspaper notes that shares of Chinese developers surged by 10%, but analysts question whether the package will be truly effective. "Many people are waiting for real estate prices in China to drop," it claims.
"It is somewhat similar to rescuing financial institutions during the Great Financial Crisis," said Zhu Ning, a finance professor at the Shanghai Advanced Institute of Finance, during an interview with Bloomberg TV.
Down payment
During Friday's meeting, China's Vice Premier He Lifeng emphasized that "the real estate sector is strongly connected to economic development." He also stressed the need to further implement the Middle Kingdom's so-called "three major projects": social housing, city renovation, and public infrastructure.
On Friday, the central bank reduced the minimum down payment to a record low of 15%. Buyers purchasing a second home now need to put down 25%, with both changes representing a decrease of 5 percentage points.
Each city will still have to make its own decisions regarding mortgage interest rates after the nationwide minimum is eliminated. Local authorities can decide whether to maintain the minimum interest rate levels for mortgages and at what level, the portal reports.
Housing crisis in China
As Bloomberg writes, more than three years after China introduced strict limits on developer debt, real estate companies, including state-supported China Vanke Co., are on the brink of bankruptcy.
Altogether, they failed to repay $124 billion in debt. This threatens the entire society as protests among Chinese citizens intensify, and unsold housing inventories remain at their highest level in eight years. With halted construction work and developer insolvency, about 5 million people face the risk of unemployment or reduced income. Images of empty buildings and unfinished public works have become global symbols of dissatisfaction with Xi's economic management, explains the portal.
