China has rolled out a spate of new measures to boost the property market. The real estate sector has long made a significant contribution to China’s economic growth, but China’s property market has been in a downturn over the past several years with falling housing prices. The Western media have churned out a biased narrative highlighting that the bubble in China’s property market has burst and plunged into a crisis, ignoring the fact that China has a solid financial and banking system and has exerted stringent controls on the finance and debt levels of property developers.
An array of nationwide and city-specific policies has been initiated amid the property market’s adjustment. The People’s Bank of China (PBOC), the Ministry of Housing and Urban-Rural Development, and the Ministry of Natural Resources have introduced coordinated and supportive measures to stabilize the property market and offer more support to homebuyers and developers.
China has resorted to different tactics and approaches to address the current property downturn. In the latest round of measures, the PBOC will set up a 300 billion yuan ($41.42 billion) fund to support State-owned enterprises to purchase some of the unsold homes from developers as affordable housing. The fund is expected to generate loans of over 500 billion yuan in the banking sector. The affordable-housing initiative, otherwise known as government-subsidized housing, helps resolve the housing needs of low-income families by setting rents below market levels. Local governments are also encouraged to buy unsold homes and rent them out to residents as affordable housing, and buy back idle residential-land sites from developers at reasonable prices. After the buyback, the land sites can be utilized for building more affordable housing and developing public facilities to improve the local living environment. The measures have drawn positive responses from local governments. In Hangzhou’s Linan district, housing authorities have stated that they will purchase unsold flats as affordable housing with a floor area of about 10,000 square meters. Therefore, the measures will offer more support to developers on financing as well as supply more affordable housing for low-income households.
Also, the central government has initiated more nationwide policies to unleash homebuyers’ pent-up demand and ease the burden on buying flats. The latest policies include cutting down payment ratios for first- and second-time homebuyers to 15 percent and 25 percent respectively, from 20 percent and 30 percent. The floor level on mortgage rates has also been scrapped, and homebuyers can pay less interest on their mortgages as the loan rates of the individual housing provident fund has been cut. At the same time, many cities have launched housing trade-in programs to encourage households to sell their old flats and buy new and bigger houses. Apparently, the central government has resorted to versatile means to stimulate demand for housing and ease homebuyers’ burden on mortgage and interest payments.
Meanwhile, local governments in some big cities have scrapped stringent restrictions on the purchase of properties. Earlier, the authorities in Hangzhou, Zhejiang province, and Xi’an, Shaanxi province, have removed stringent restrictions on home purchases. In Hangzhou and Xi’an, homebuyers no longer need to meet preexisting conditions, such as social security contributions, to purchase flats there. There is no longer a limit on the number of flats each homebuyer is allowed to purchase. Homebuyers in Hangzhou can also apply for residence permits, and their applications are subject to official approval. Even so, authorities in some first-tier cities, such as Beijing, have retained specific counterspeculative policies tailored to the situation of the local property market. The measures on eliminating stringent restrictions on the purchases of flats will help revive momentum in the property market.
At present, most flats can be completed and delivered to Chinese homebuyers. The central government has made the utmost effort to ensure delivery of flats, though a number of residential projects might not be completed by beleaguered developers such as China Evergrande Group. Homebuyers have committed their life savings to buying their flats. The initiative has safeguarded the interests of homebuyers and ensured social stability. To ensure the delivery of housing projects by developers, a whitelist mechanism was established in January. Under the mechanism, local governments have selected real estate projects that are eligible for financial support from banks. Based on the National Financial Regulatory Administration’s figures, banks had approved about 935 billion yuan in loans to support construction of housing projects in over 290 cities as of mid-May.
In addition, China’s current property downturn is entirely different from the US financial crisis in 2008. The Western media have stated that the US financial crisis could possibly play out in China, but have overlooked the fact that China’s banking and finance systems have remained solid. In the US, the financial crisis was widely blamed on the subprime mortgage woes when American housing prices slumped after the property bubble burst and many borrowers failed to pay their mortgage loans. The increase in foreclosures caused some financial institutions to collapse, and the American government was forced to bail out banks and other giant business enterprises. In China, State-owned and commercial banks continue to operate in a stable condition with low nonperforming-loan ratios. Chinese banks remain well-capitalized to support developers to complete residential projects. Chinese homebuyers are also making mortgage payments normally without foreclosure risks.
Compared to other countries, China has many innovative policy tools to tackle the property market’s downturn. It just needs more time for the market to stabilize. If the latest round of supportive policy measures are well-implemented, it will boost homebuyers’ confidence and revive market vitality. The real estate sector is expected to gradually recover and move toward healthy development.
The author is a member of the Beijing Municipal Committee of the Chinese People’s Political Consultative Conference, and founder and chairman of the One Country Two Systems Youth Forum.
The views do not necessarily reflect those of China Daily.
