Why isn’t Beijing saving the real estate industry?

Why isn't Beijing saving the real estate industry?
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Many Chinese developers have halted or delayed construction on previously sold homes due to cash flow issues. Pictured is a property construction site in China’s Jiangsu province in October. 17, 2022.

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BEIJING — Even as foreign investors hope for a major bailout, China’s central government is unlikely to spend billions of dollars to bail out its struggling real estate sector, analysts said.

One year after Chinese developer EvergrandeDebt problems began to plague investors, and the country’s real estate problems worsened. Some home buyers refused to pay their mortgage Property sales fell due to construction delays. Once-healthy developers are also struggling to pay off their debt.

“I doubt the government will directly bail out property developers, even if they keep asking the banks. [state-owned enterprises] “To help selected troubled developers,” said Tommy Wu, senior China economist at Commerzbank.

He hopes Beijing will want to gradually resolve problems in real estate and reduce the industry’s role in the economy. Property and related industries account for about a quarter of China’s gross domestic product.

“New measures in the coming weeks and months will likely continue to focus on supporting home completion and promoting home sales,” Wu said. Said.

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S&P Global Ratings said in September that it estimated the real estate market needs between 700 billion yuan ($98.59 billion) to 800 billion yuan “to enable distressed developers to finish homes that had already been sold.”

A central government fund of similar size has yet to be announced.

This much despite multiple reports citing sources on proposed funds. Some investment analysts expect such a fund, especially large enough to boost confidence.

Many developers are already struggling financially.

Total liabilities disclosed by Evergrande, Kaisa and shimao By mid-2021, it was more than 2.6 trillion yuan, after which the financial problems of the three developers worsened. They make up only a fraction of the industry.

Qin Gang, executive director of the Chinese real estate research institute ICR, said that at this scale, even if the central government spent hundreds of billions of yuan, it would have little impact.

While the ‘market driven’ approach to supporting high-quality developers may continue, we do not expect troubled developers to be rescued…

That doesn’t think the government is much more short on cash now than it was three years ago, he said, pointing to the decline in revenue from land sales and taxes, and Spending on Covid measures has increased.

China’s central government collected about 9.15 trillion yuan ($1.26 trillion) from total public revenue in 2021. According to the Ministry of Finance.

For the first eight months of the year, this revenue amounted to 6.36 trillion yuan, down nearly 10% from a year ago, excluding tax credits.

social perception

Saying that public perception is also important, Qin stated that people might get angry if the government helps these indebted developers.

The issue of handing over finished apartments is very complex and requires local coordination to resolve, he added.

In the last few months, the central government has lowered mortgage rates and has given local authorities the responsibility to resolve property issues. Some cities have also relaxed home-buying restrictions this year.

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The Ministry of Housing and Urban-Rural Development stressed to reporters last month that central government measures – special loans to encourage the completion of homes – are aimed at supporting cities in need. No amount was mentioned.

The explosive growth of China’s real estate industry over the past two decades has battered wealthy magnates who are not afraid to flaunt their wealth. Beijing has in recent years stressed on reducing the national wealth gap.

Much of the real estate industry’s rapid growth has been fueled by borrowing contractors. House prices rose, creating concerns about a bubble and forcing families to borrow money to buy a house.

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A record-breaking decline

Based on Barclays’ analysis of quarterly real estate investment data, analysts said the Chinese real estate decline has now entered its 10th quarter – a record time of more than two years. 13 reports.

That contrasts with an average of four to five quarters for previous real estate declines in China, according to the report.

The biggest challenge at the moment in restoring confidence is the barriers on consumer and business activity due to the still weak economy and zero Covid policy.

Tommy Wu

senior Chinese economist, Commerzbank

Analysts said the prolonged decline means that Chinese will be less willing to buy homes and take advantage of their rising prices. This means falling sales for developers.

“While the ‘market-driven’ approach to supporting high-quality developers remains, we do not expect troubled developers to be bailed out,” Barclays analysts said, referring to measures such as the issuance of government-backed guaranteed bonds. Said.

government station

In an example where government agencies are expected to become increasingly involved, Evergrande’s Shenzhen division announced in late September that it will cooperate with a state-owned enterprise.about providing home delivery.

Otherwise, the central government continued to focus on issues other than real estate.

Many initially expected Beijing to revive a central bank lending vehicle this fall to help developers finish home construction – but it turned out to be for infrastructure. Caixin reported this month, By citing relevant sources.

The People’s Bank of China did not respond to CNBC’s request for comment.

“While stronger support helps [real estate]Wu from Commerzbank said the biggest challenge at the moment in restoring confidence still remains barriers to consumer and business activity due to the weak economy and zero Covid policy.

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