Beijing announced on Monday the launch of a major bailout for its property sector that has been in crisis for several years. Among the measures envisaged there is in particular credit support to help indebted developers and to complete ongoing projects. The goal is for Chinese banks to agree to grant “special loans” to real estate operators. According to Ting Lu, an economist at Nomura Bank quoted by AFP, this easing reflects the ” turning » adopted this year by Chinese authorities following their decision in 2020 to restrict access to credit for real estate developers.
In the late 1990s, China experienced a real estate boom after market liberalization. Promoters developed very quickly, especially thanks to bank loans. The buildings have sprung up like mushrooms over the span of 20 years. So much so that the country’s economy has become dependent on this sector, which currently accounts for between 14 and 30% of GDP. This real estate frenzy has led to an increase in prices per m², especially in 2016. That year, according to the National Bureau of Statistics, prices had risen by 26.4% in Beijing and 29% in Shanghai.
The progressive indebtedness of the promoters forced Beijing to tighten the rules for lending to banks two years ago. This tightening, which had a deleterious effect on already financially struggling promoters, resulted in a liquidity crisis. At the same time, the Covid crisis was added at the end of 2019, with its share of confinements and restrictions contributing to the slowdown of the whole economy.
The Evergrande case
Even the most famous promoters are now on the verge of bankruptcy, like Evergrande. The main Chinese real estate giant is overwhelmed by an abysmal debt of 300 billion euros. On the verge of bankruptcy, he does his best to honor his interest payments and apartment deliveries. But it has had to suspend its listing on the Hong Kong Stock Exchange – where many real estate groups are listed – on several occasions and its share price has dropped by around 80% in 2021.
Due to lack of liquidity, construction sites have been blocked. More than a million apartments are now unfinished in China, making homeowners apprehensive, angry and fearful. Result: some demonstrated in the fall of 2021 in Shenzhen, where Evergrande’s headquarters are located. Others decided, during the summer of 2022, to simply stop paying off their mortgages, to protest the interruptions and slowdowns in the construction of their homes. At least 300 groups, made up of thousands of landlords, in 91 cities, have decided to start this refund strike, he noted the world in the month of July.
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The emergence of what closely resembles a social movement may have played a role in Beijing’s decision to get its hands dirty. The announcement of its bailout had immediate effects, as the news sent Hong Kong stocks jumping more than 3% at Monday’s open. The Chinese government also eased its Covid restrictions last week. Thus, easing the quarantine for international arrivals could contribute to the overall boost Beijing seeks to give its struggling economy.