China’s Real Estate Reboot: New Year’s Boost for Property Market
As the Chinese Lunar New Year holiday approaches, local governments are rolling out measures to stimulate the real estate market. On the supply side, they are creating a “whitelist” to support quality real estate companies in financial trouble, while on the demand side, even large cities are joining the ranks of those easing housing purchase restrictions. This is an effort to restore confidence in the real estate market, shocked by the bankruptcy of Chinese real estate tycoon Evergrande. However, experts in the industry are uncertain how far these stimulus measures will go in a gloomy economic outlook.
Bank Loan Support for State-owned and Private Quality Real Estate Companies
According to The China Securities Journal on the 1st, a series of “whitelists” for real estate construction projects have been announced in cities such as Nanning in the Guangxi Autonomous Region, Chongqing, Kunming in Yunnan Province, and Chengdu in Sichuan Province.
This follows a directive from a meeting of the Chinese Ministry of Housing and Urban-Rural Development on the 26th of last month for each local government to compile a list of real estate projects needing funding by the end of January and to expedite loan support. The Evergrande Group, which recently defaulted on a staggering $300 billion in debt, received a bankruptcy judgment from a Hong Kong court, dealing another blow to the confidence of Chinese real estate companies already weakened by management difficulties.
According to reports, on the 31st of last month, Nanning City sent the first “whitelist” containing 107 real estate projects to local financial institutions. Among them is the “Beitou Huaweiyuan” project of Guangxi’s local state-owned real estate company Beibuwan Investment Group, which received 330 million yuan (approximately $46 million) in development loan funds from Minsheng Bank. This is the first loan support according to the real estate “whitelist” in China.
On the same day, Chongqing City also announced the first “whitelist” containing 314 real estate projects, which included apartment businesses of state-owned and private real estate companies such as Longhu, Vanke, and Huaweicheng. The funds required for these projects amount to about 83 billion yuan (approximately $11.6 billion), and they plan to receive loan support from 22 local financial institutions.
In addition, Kunming and Chengdu have each sent the first “whitelist” listing 212 and 227 real estate projects, respectively, to each financial institution. The Inner Mongolia government has also instructed relevant sectors to send the first “whitelist” of real estate business loans to each local government by the end of January and the second “whitelist” by the end of February. Loan support for quality real estate projects is expected to continue as other local governments will also announce “whitelists” in the future.
Liu Sui, Chief Corporate Researcher at the China Real Estate Research Institute, predicted in the Shanghai Securities News that “local banks will evaluate the projects included in the “whitelist” based on the situation of each project and the loan support criteria, and if the level of assets and liabilities is reasonable and it is judged that the project can repay the loan, the approval review time will be shortened to execute the loan as soon as possible.”
Recently, there have been announcements that major cities in China are successively lifting the residence purchase limiting orders to stimulate housing demand. This is happening as the prices of existing homes in first-tier cities, such as Beijing, Shanghai, Guangzhou, and Shenzhen, which remained unscathed despite the real estate slump, are beginning to fall.
As soon as the Chinese Ministry of Housing and Urban-Rural Development held a meeting on the 26th of last month and emphasized that each local government should have autonomy over real estate regulatory policies and flexibly regulate real estate according to local conditions, major cities began to stimulate demand.
From the 31st of last month, Shanghai relaxed regulations to allow unmarried individuals from other regions without a Shanghai Hukou (a household registration used for identity and residence verification) to purchase up to one house. Since 2012, Shanghai has prohibited unmarried individuals from other regions from purchasing a home at all. However, from that day, unmarried individuals from different areas who have paid social insurance or personal income tax in Shanghai for more than five years were allowed to purchase houses outside the Shanghai Beltway in Minhang District, Baoshan District, Jiading District, etc.
Suzhou in Jiangsu Province also completely lifted the residence purchase limiting orders from the 30th of last month, and Guangzhou, the provincial capital of Guangdong, also lifted the purchase restriction on downtown large apartments of 120 square meters (1291 square feet) or more from the 27th of last month.
According to China’s CaiXin Network, residence purchase limit orders are still in place in about ten cities in China. These include first-tier cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Hangzhou, Chengdu, Xi’an, Changsha, and Haikou.
In Singapore’s United Report, Zhang Xiaodong, Deputy Director of the Research Institute of Cushman & Wakefield, a global commercial real estate consulting firm, predicted that “each city will introduce policies to stimulate housing demand before and after the Lunar New Year.” Deputy Director Zhang also predicted that “considering the market’s policy adaptation period, the Lunar New Year holiday (off-season), and mass population migration, the policy effect will gradually appear after the Lunar New Year holiday, and the real estate market may rebound in the short term.”
However, he pointed out that the real estate market is undergoing an adjustment period, and the economic outlook is gloomy, so the effect of housing stimulus measures may be diminished. He stressed that stable economic growth must be backed up for the real estate market to improve.
There are also opinions that it is uncertain how effective the easing of residence purchase regulations will be. Huang Tao, General Manager of Guangzhou Zhongyuan Real Estate Business, told the United Report, “Although the number of inquiries about housing purchases has increased in the five days since Guangzhou eased housing purchase regulations, there has been no significant change in the actual transaction volume,” and pointed out, “The biggest problem in the current market is that people with money don’t buy houses, and people who want to buy houses don’t have money.” He emphasized, “The current measures to ease residence purchase regulations don’t help actual demanders much,” and stressed that they should actively support actual demanders with measures such as lowering the mortgage loan interest rate and the down payment ratio for housing purchases.