China plans sweeping rescue policies to avert property crisis

The move is the strongest sign yet that Chinese policymakers are easing a years-long clampdown on the property sector. PHOTO: REUTERS

BEIJING – China has unveiled its most sweeping rescue package to bail out a real estate market mired in a record slowdown and deepening liquidity crunch, according to sources familiar with the matter.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission on Friday was said to have jointly issued a notice to financial institutions laying out plans to ensure the “stable and healthy development” of the property sector.

Unlike previous piecemeal steps, the latest notice includes 16 measures that range from addressing the liquidity crisis faced by developers to loosening down payment requirements for home buyers, the sources said.

As part of the rescue plan, developers’ outstanding bank loans and trust borrowings due within the next six months can be extended for a year, while repayment on their bonds can also be extended or swopped through negotiations.

The move is the strongest sign yet that Chinese policymakers are easing a years-long clampdown on the property sector, one of the biggest drags on the world’s second-largest economy along with China’s dogged zero-Covid-19 policies.

The authorities also issued a sweeping set of measures to recalibrate their pandemic response on Friday, publicly outlining a 20-point playbook for officials aimed at reducing the economic and social impact of containing the virus.

Pivot to rebuild and catch up

Taken together, the policy shifts by President Xi Jinping’s government will likely ease two of the biggest headwinds to China’s growth outlook and add fuel to a market rally that sent a gauge of Chinese shares in Hong Kong up 17 per cent in the past two weeks.

It is a stark reversal from the gloom that descended over markets in late October, after Mr Xi’s elevation of close allies to the highest rungs of power stoked concern that ideology would trump pragmatism for the most powerful Chinese leader since Mao Zedong.

The Hang Seng China Enterprises Index has now erased losses suffered in the immediate wake of last month’s Communist Party congress, swinging from one of the world’s worst-performing stock gauges to among the best.

The authorities have sought to defuse the property crisis with a raft of measures in the past few months, including cutting interest rates, urging major banks to extend 1 trillion yuan (S$193 billion) of financing in the final months of the year, and offering special loans through policy banks to ensure property projects are delivered.

China also expanded a key financing support programme designed for private firms, including real estate companies, to about 250 billion yuan last week, a move that could help developers sell more bonds and ease their liquidity woes.

Loosening the reins

One of the biggest policy changes in the latest notice is to allow a “temporary” easing of restrictions on bank lending to developers.

China began imposing caps on bank’s property lending in 2021, as the authorities sought to tighten the reins on a bubble-prone industry and curb leverage at some of the nation’s largest developers. Banks not meeting the current restrictions will be given extra time to meet the requirement, said the sources.

In addition, regulators encouraged banks to negotiate with home buyers on extending mortgage repayment, and emphasised that buyers’ credit scores will be protected. That may alleviate the risk of social unrest among home buyers who have engaged in a widespread boycott on mortgage payments since July.

China’s US$2.4 trillion (S$3.3 trillion) new home market remains fragile, and property debt defaults have surged. Price declines in the existing home market were the most extreme in almost eight years in September, according to the latest official data.

At banks, the proportion of bad loans related to property has surged to 30 per cent, according to Citigroup estimates.

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