Beijing comes to the rescue of its real estate sector

The Asian giant has experienced a boom in the real estate sector since market liberalization in 1998, in a country where property acquisition is often a prerequisite for a marriage and an investment.

China has unveiled measures to revive the real estate sector, a sector crucial for its growth but rendered bloodless by a tightening of financing rules and the pandemic, which has plunged many promoters to the brink of bankruptcy.

These new measures include in particular credit support.

The Asian giant has experienced a boom in the real estate sector since market liberalization in 1998, in a country where property acquisition is often a prerequisite for a marriage and an investment.

The promoters were able to develop at high speed thanks to bank loans. But their debt has grown so much that the authorities have decided to end it from 2020.

Credit access

Since then, access to credit for developers has dropped significantly, while demand for real estate has plummeted in China due to the economic slowdown and uncertainties related to Covid-19 restrictions.

Many real estate developers are now fighting for their survival, including former industry heavyweight Evergrande, strangled by a debt estimated last year at around $ 300 billion.

The real estate sector in China is a key sector of the economy which, along with construction, accounts for about a quarter of GDP and supports an army of low-skilled workers.

In this context, the authorities established new support measures on Friday 16, which should offer a breath of fresh air to the sector.

They weren’t published, but the main lines were revealed in the Chinese business press on Monday.

These measures by the central bank and the banking and insurance regulator include credit support to help indebted developers and to complete ongoing projects.

“A turning point”

Due to a lack of liquidity, some real estate groups have finished their work in recent months. And a growing number of furious owners refused to pay their monthly payments, risking aggravating the crisis and defaults.

The measures unveiled by Beijing “guarantee” the return of goods and direct banks to provide “special loans” to achieve this, according to a directive circulated online and cited by the Chinese media.

This decision reflects a “turning point” taken by the authorities since their decision in 2020 to strengthen access to credit for property developers, Nomura bank economist Ting Lu said.

“These measures show that Beijing is ready to reverse most of its decisions,” Lu said.

Zero Covid

The news sent the Hong Kong stock exchange up more than 3% on Monday when it opened, where many real estate groups are listed.

On Friday, China had announced the easing of several anti-Covid measures that are heavily penalizing the economy, including a reduction in the quarantine for international arrivals.

The Asian country is the last major economy to maintain a strict health policy against the coronavirus.

This so-called “zero Covid” strategy translates into confinement of neighborhoods or entire cities as soon as positive cases appear, quarantines for the infected but also almost daily PCR tests.

This policy has significant implications for global supply chains and corporate morale.

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