China's latest housing measures, announced at the Housing Ministry's press conference today, have fallen short of economists' expectations, who were hoping for a stimulus package of up to 10 trillion yuan ($1.4 trillion) to boost the world's second-largest economy. Instead, the measures are incremental, offering some relief to developers' financial struggles, but probably not enough to fully stabilize the housing market
China's Minister of Housing and Urban-Rural Development, Ni Hong, held a press briefing on Thursday in Beijing, attended by officials from the People’s Bank of China, Ministry of Finance, and the National Financial Regulatory Administration.
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I've summarized the real estate press briefing, the key points revolve around two major policies:
Monetary compensation for the renovation of 1 million units in urban villages and older housing areas. This means the government will compensate residents in cash, allowing them to purchase new housing. This initiative is expected to generate demand for approximately 1 million homes. If this plan is focused on 35 major cities, each city would see an additional demand for around 28,500 homes annually, translating to a monthly increase of about 2,400 home purchases per city. This would have a noticeable impact on the local housing markets by boosting demand.
Expanding the credit scale for "whitelist" projects to 4 trillion yuan by the end of the year. This funding is mainly aimed at resolving the issue of unfinished real estate projects, commonly known as "rotten-tail" buildings. While Nomura Securities originally suggested that 7 trillion yuan was needed to resolve the issue entirely, the current plan allocates 4 trillion yuan in the first year, implying that the problem might be addressed over a two-year period.
However, despite these policies, the question remains whether they can truly revive China's struggling real estate market. The measures may help, but are likely insufficient for several reasons:
Ongoing restrictions: While some policies have relaxed, major limitations remain. For example, banks still have loan caps on real estate, and the "three red lines" policy for developers has not been lifted. These constraints hinder more substantial recovery.
Incomplete policy relaxation in major cities: Only Guangzhou has fully lifted real estate restrictions, while cities like Shenzhen and Shanghai have only partially relaxed their policies. This limits the broader impact on the market.
Wider economic factors: The effects of the pandemic have significantly reduced people's disposable income over the past three years, impacting their ability to purchase homes. Additionally, demographic challenges such as aging and declining birth rates are long-term pressures that weigh on the real estate sector.
In conclusion, while the policies introduced may provide some relief and stimulate demand, they are unlikely to lead to a dramatic turnaround in the real estate market. Broader economic challenges and the persistence of various restrictions continue to pose significant obstacles.
The following are the simplified details:
On the same day, the State Council held a meeting to study and implement measures. The Ministry of Housing, in collaboration with the Ministry of Finance, the Ministry of Natural Resources, the People’s Bank of China, and the National Financial Regulatory Administration, introduced a "comprehensive policy package" aimed at stabilizing the market. This package can be summarized as "4 Cancellations, Four Reductions, and 2 Increases."
The "4 Cancellations" include:
Granting local governments more autonomy to adjust real estate controls.
Canceling various home purchase restrictions, such as lifting limits on home buying, home selling, pricing, and standards for ordinary and non-ordinary residential housing.
The "4 Reductions" include:
Reducing the interest rate for housing provident fund loans by 0.25 percentage points.
Lowering the down payment ratio for housing loans, unifying the ratio for first and second homes at 15%.
Reducing interest rates on existing housing loans.
Reducing the tax burden for individuals selling old homes to buy new ones.
These measures are aimed at lowering the cost of homeownership, easing mortgage pressures, and supporting residents' housing needs, both for first-time buyers and those looking to improve their living conditions.
The "2 Increases" include:
Implementing the renovation of 1 million units in urban villages and old housing areas using a monetary compensation model. In total, there are 1.7 million units in urban villages and 500,000 old homes that require renovation, amounting to 2.2 million units. The initial goal is to renovate 1 million of these units through monetary compensation, meaning residents are given money to relocate, which also helps absorb the supply of unsold commercial housing.
Expanding the credit scale for "whitelist" real estate projects to 4 trillion yuan by the end of the year. The goal is to ensure all eligible real estate projects are included in the whitelist to secure financing
At the press briefing, Xiao Yuanqi, Deputy Director of the National Financial Regulatory Administration, elaborated on several actions in line with the government's directives.
Inclusion of all commercial housing project loans in the whitelist: Banks are required to ensure that all loans for eligible projects are included in the list.
Maximizing loan disbursement for whitelist projects: Banks are instructed to approve loans for whitelist projects as much as possible.
Optimizing the loan disbursement process: Banks are urged to disburse loans promptly to accelerate project financing.
Xiao Yuanqi revealed that as of October 16, loans approved for whitelist real estate projects had reached 2.23 trillion yuan. By the end of the year, it is expected that loan approvals will amount to 4 trillion yuan, which aligns with Ni Hong’s earlier statement.
Following this, a reporter from Haibao News inquired about managing land supply and activating idle land. Liu Guohong, Deputy Minister of Natural Resources, addressed this, outlining a dual focus: controlling the increase in land supply and optimizing existing land.
Controlling new supply: In cities where the housing de-stocking period is long, residential land supply will be temporarily paused. In these areas, only the amount of idle land that can be reactivated will be released for sale.
Revitalizing idle land: This process is expected to achieve three goals:
Reduce the number of unsold land plots on the market.
Increase liquidity for real estate companies by monetizing idle land.
Build a reserve of high-quality land for future use.
Lastly, Assistant Minister of Finance Song Qichao discussed tax policy reform. He mentioned that the Ministry of Finance is currently studying changes to tax policies related to the distinction between ordinary and non-ordinary residential housing. At present, value-added tax exemptions apply in all cities except for four first-tier cities.
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