Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments.
These and other measures announced Friday marked Beijing's latest efforts to address issues in the massive real estate sector.
The People's Bank of China will provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
Also Friday, the PBOC removed a floor on mortgage interest rates, and lowered the minimum down payment ratio for first- and second-time home buyers.
BEIJING — Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments, in an effort that could help developers get more funding to finish construction on pre-sold properties.
These and other measures announced Friday marked Beijing's latest efforts to address issues in the massive real estate sector.
"I think it is encouraging that the policy is taking a turn of direction trying to support the housing market," said Zhu Ning, a professor of finance at Tsinghua University and author of the book "China's Guaranteed Bubble."
People's Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
The central bank expects the support to release 500 billion yuan in financing for such purchases, which the SOEs could turn into affordable housing.
The real estate companies can then use funds earned from those sales to complete construction on other apartments, the central bank said.
As for unfinished, pre-sold properties, the National Financial Regulatory Administration Deputy Director Xiao Yuanqi told reporters that commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January.
"The government's purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery," Larry Hu, chief economist at Macquarie, told CNBC. "Finally the government stepped in as the buyer of the last resort."
"At this stage, it's mainly SOEs and local governments to implement the policies, but their resources may be too limited to move the needle at the macro level," he said. "Later on, we might see more efforts from the central government."
Developers "that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured," Dong Jianguo, deputy head of the ministry of Housing and Urban-Rural Development, told reporters in Mandarin, translated by CNBC. He said homebuyers' interests and rights should be prioritized, and those that violate the law should be punished.
Because liberals won't realise that this is the difference between China and America unless communists spell it out for them, and the US is committing a real genocide.
Highlighting differences in the way that two completely different forms of structuring society and noting how one leads to better outcomes for people might make a poignant suggestion towards USians about what we could have if we didn't lick the boot of corporations
I mean, the Chinese government can literally seize all the properties if they want to.
The reason they’re pumping money into the real estate sector is because it cannot be allowed to crash. There is simply way too much money tied up as investment in real estate that if they let the bubble bursts (as it should), a lot of people and corporations (many of which have nothing to do with real estate but have taken out huge amount of loans to invest in real estate) are going to lose their money, and that is going to affect consumption and production in the real sector (the part of the economy that actually produces real goods and services).
What they’re doing here is to control the fall so it lands as softly as possible, but there is no good way out of it. It will be painful no matter what, it’s just a matter of how much damage can you mitigate in the process - who and what to save and who and what to sacrifice.
It's not the same as the US-model (here's a trillion dollars, live off the profits and pay us the original amount without inflation or interest and risk free return adjustments), but SOEs are getting loans to buy unsellable properties from private developers to keep (some) private developers in business so they can finish construction and sell other properties, keeping everyone's capital investment safe (with a haircut here and there).
I suppose that the money is going to be invested somewhere else, since the incentives to construction were removed (if I remember correctly).
Then, different to plain US bailouts, they're buying the properties, so now the state has a huge inventory to provide housing pretty much any time they need, and compete with any new upcoming buildings.
Therefore, building more housing right now would be illogical, and I don't think another round of these "bailouts" would be expected by building enterprise.
Sounds still like a soft landing for building companies. Which sounds... Mostly fair. Now, if they decide to try to get these again, I wouldn't expect CPC to play ball.
Yes, it's a bailout. Government funds from PBOC are being transferred to property owners via SOEs. This is a direct purchase by the government of bad assets which could not be sold and are currently losing money for the owners. It's a wealth transfer from the state to the owner class.
The official 70-city house price index released Friday fell more quickly in April than in March, according to Goldman Sachs analysis that looks at a seasonally adjusted, annualized weighted average.
The figures indicated an 8.5% month-over-month decline in April, steeper than 5.6% in March, Goldman said.
So this is mostly to keep the prices from falling too fast, which could cause some chaos and pain. They also mention that there is 2 years worth of supply waiting to be sold, but also 20 million apartments that were pre-sold but not completed.
So sounds like they are using govt intervention to buy up inventory on the cheap (slowing falling prices) and selling that at a fair price to folks that have their money tied up in these failing developers projects.
Buying up the inventory also provides stabilization of developers that are not complete failures and just struggling under the falling prices and lack of demand. This seems like Keynesianism done from a socialist perspective essentially.
People’s Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
The bankers are bailing out the real estate companies. I'm not clear on why anyone is praising this as some socialist paradise behavior, it's not like the SOEs are going to turn around and give the housing to the people for free. This is exactly the same kind of behavior as happens in Western/capitalist nations, where the government pushes the banks to extend loans to major companies that are struggling financially.
The government’s purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery,” Larry Hu, chief economist at Macquarie, told CNBC.
"inject more liquidity to developers" e.g. transfer of government (social) wealth to property owners. Privatize the gains and socialize the losses.
“Finally the government stepped in as the buyer of the last resort.”
Because the property prices are too high for average people to afford, and more than the properties are actually worth.
Yeah you could call it state capitalism or a bailout, the end result is more affordable housing. I’d rather bailout housing speculators than market speculators.
Also Friday, the PBOC removed a floor on mortgage interest rates, and lowered the minimum down payment ratio for first- and second-time home buyers.
Developers "that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured," Dong Jianguo, deputy head of the ministry of Housing and Urban-Rural Development, told reporters in Mandarin, translated by CNBC. He said homebuyers' interests and rights should be prioritized, and those that violate the law should be punished.
The government’s purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery,” Larry Hu, chief economist at Macquarie, told CNBC
Except that real estate is one of the few things that is very finite. If all the best places to build have already been developed (cheap, accessible, desirable) then it will cost the developers more and more to try to develop less accessible or desirable places. Any that try will find that their ability to make a profit will be greatly reduced and it would have been more "profitable" for the developer to just take the money from the state owned enterprises and retire.
Any that try will find that their ability to make a profit will be greatly reduced and it would have been more “profitable” for the developer to just take the money from the state owned enterprises and retire.
Yes... and well, let's extend a sort of best-case into the future:
the SOEs purchase unsold housing from real estate companies
the SOEs then offer those units for sale to buyers at reduced prices
the real estate companies spend the money from the SOEs to develop new properties
the completed new properties are put on the market... where they are now competing against the units that were previously sold to the SOEs
This is bad. Either the developers have to build low-value units which they expect to be able to sell at lower cost than whatever the SOE will be selling units for, or they have to build high-value units which they expect they will be able to sell to wealthier clients who don't want the units that the SOEs are selling.
If the former, then they will undercut the SOEs' ability to sell the units they purchase, leaving the government holding bad assets. If the latter, then there will be no additional affordable housing built.
So I think you're right, it would make sense for a lot of the developers to simply take the money from the SOEs and then leave the market.