In a significant move to prevent a downward spiral in its residential property market and bolster its faltering economy, China has announced a series of measures that are creating ripples across the global economic landscape. The 5% growth target set by Beijing is teetering on the brink, with a slump in the real estate sector posing a severe risk to the country’s financial system. The impact can be seen in the 34% drop in sales from the country’s top developers in August compared to the same period last year, and Country Garden Holdings Co., a former leader in sales, is on the precipice of default.

These new policies, aimed at instilling confidence and stimulating economic growth, have elicited a mixed response from experts and analysts. The measures range from fiscal incentives such as extending personal income tax rebates for households upgrading their apartments until the end of 2025, to easing mortgage restrictions, reducing down payment ratios, and supporting the redevelopment of old villages within mega cities. However, the question remains whether these strategies will be enough to restore faith in the economy and spur the desired growth.

China Announces Measures to Revive Struggling Property Sector

China has launched a series of measures aimed at halting the decline in the country’s residential property market and bolstering its struggling economy. These actions come at a critical time, as Beijing’s 5% growth target is under threat due to a significant slump in the real estate sector.

A Sector in Decline

Sales by China’s largest developers have witnessed a steep 34% drop in August compared to the same period last year. Among the affected is Country Garden Holdings Co., previously the nation’s largest by sales, which is now teetering on the brink of default. The slowdown in the real estate sector poses significant risks to the country’s financial system and has sparked mixed reactions to the government’s intervention measures.

Fiscal Incentives and Mortgage Easing

The actions rolled out by Beijing include fiscal incentives, with the Ministry of Finance extending a personal income tax rebate for households upgrading their apartments until the end of 2025. In a move to stimulate property buying, banks, as of August 30, no longer disqualify those who have a fully repaid mortgage record as first-time buyers, provided they do not own a property. This policy has been implemented in major cities including Guangzhou and Shenzhen.

Lowering Down Payments and Interest Rates

Further measures include first-time homebuyers being able to renegotiate their mortgage interest rates with banks from September 25, as announced by the central bank. Additionally, Beijing reduced the minimum downpayment ratio across the country to 20% for first-time home buyers and 30% for second purchases.

Urban Renewal and Other Measures

The State Council has announced support for the redevelopment of old villages within mega-cities, with major cities like Shanghai and Guangzhou following suit. Other measures include the imposition of a nationwide cap on real estate commissions, allowing private equity funds to raise money for residential property developments, pledging $28 billion in special loans to ensure the completion of stalled housing projects, and extending some parts of the 16-point plan to address liquidity issues in the sector.

Takeaways

The Chinese government’s proactive measures to revive the ailing real estate sector demonstrate its commitment to safeguarding the economy. However, it remains to be seen whether these actions will be sufficient to restore confidence and spur growth in the housing market. The situation warrants close monitoring, given the real estate sector’s critical role in China’s economy.