China reveals easing of real estate pressures.
In the Chinese countryside, construction sites remain inactive due to the considerable debt of construction companies. The government steps in to address the real estate crisis and encourage economic growth. Remarkable actions are revealed, sparking optimism in the stock market.
The Chinese government is taking measures to alleviate the severe debt issues plaguing the real estate industry. Acting Deputy Prime Minister He Lifeng proposes solutions at a gathering with local authorities, banks, and real estate companies. One plan is to enable local governments to purchase unused or incomplete housing units, as per the official statements. To stimulate private investment in real estate, the required minimum capital will also be lessened.
This sector generates over 25% of China's economic output. The construction expansion in previous years was mostly funded by loans used to finance new projects with income. After the government led by Xi Jinping stepped in to control real estate speculation, companies couldn't obtain funds as easily. This lead to less demand, lower property values, and increased debt for various companies, including Evergrande and Country Garden. Some apartments and buildings were left unfinished, leaving victims with payments for already sold units.
Authorities stepping in
Xinhua, the state news agency, reports that Vice Premier He considers it necessary "to actively promote the housing projects that have been paid for but not completed." The intention is for "government authorities in cities where there are many incomplete apartments and unsold houses" to "make offers and buy some of these properties at reasonable prices to be used as affordable housing."
The challenge is managing those vacant properties properly after their acquisition. "These efforts are primarily intended to help housing associations struggling financially," he explained. Specific information about the scale and format of this property purchase program was not initially provided.
The central bank and the financial regulator expressed that private individuals' mortgage loan capital requirements will decrease to 15% for their first home purchase and 25% for their second home purchase. "This is the lowest down payment percentage and the lowest mortgage interest rate in history," noted Yan Yuejin, the research director at the Yiju Research Institute.
"These measures signal a very positive direction and are greatly beneficial in improving market sentiment," Yan commented. "We are extremely optimistic about the potential influence on the real estate market."
Stock market reaction
Following the announcement of the new strategies, the share prices of real estate companies in Hong Kong spiked. The Agile Group skyrocketed by 23%; Fantasia rose by 8.3%, while the Sino-Ocean Group and CIFI Holdings increased by over 12% each. Expecting political announcements, stock prices had already been increasing in the past few days.
The Chinese government has been attempting for months to propel economic growth through targeted measures. Legal actions against Evergrande and Country Garden, whose debts reach nearly $200 and $300 billion respectively, are a significant concern. There are fears these debts may spillover into other sectors of the economy. These announced actions are the most prominent so far.
"China's plan to stabilize the real estate market is underway," say economists at the major banking institution HSBC. "The more prompt and decisive the intervention plan is, the more likely it is to be successful."
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In response to the real estate crisis, Chinese authorities announce plans to purchase incomplete housing units to be used as affordable housing. This move, led by Vice Premier He, aims to assist struggling housing associations and boost market sentiment.
Amidst the easing of real estate pressures in China, analyst Yan Yuejin notes a significant decrease in down payment percentages and mortgage interest rates, potentially leading to increased optimism in the real estate market.
Source: www.ntv.de
