China rolls out new measures to fix its property crisis, spur growth

This photo released by Xinhua News Agency shows an aerial view of the construction site of the 2nd phase project of the Nanjing Financial City designed as an architectural complex comprising offices, hospitality, housing, and commercial facilities in Nanjing, east China’s Jiangsu Province, on Jan. 16, 2024. (Li Bo/Xinhua via AP, File)

China announced a slate of fresh measures Friday to reinvigorate its ailing property industry after the latest data showed housing prices have slumped nearly 10 percent since the start of the year.

Among other things, the central bank said it would reduce the minimum down payment for mortgages and remove the floor on interest rates for first and second homes.

China’s housing market has slumped after a crackdown on excessive borrowing by property developers several years ago, dragging along a wide range of other businesses — such as home furnishing, appliances, and construction — and slowing growth in the world’s No. 2 economy.

Dozens of developers, whose legions of high-rise apartments have transformed urban landscapes across China, have defaulted on their debts. Many projects have just stalled, unfinished.

He Lifeng, a vice premier, said officials would roll out policies to suit each city and “fight the tough battle of dealing with the risk of unfinished commercial housing.”

Cut in minimum downpayment rate

“We will solidly advance key tasks such as guaranteed housing delivery and absorption of existing commercial housing,” the official Xinhua News Agency cited He as telling a top-level teleconference on property policies.

The effort to entice more families to buy homes has gained momentum after earlier moves such as interest rate cuts and government-backed financing failed to lure buyers into the market at a time when developers are struggling to deliver housing already promised and paid for.

Housing is a mainstay of investment for the Chinese, given the low level of interest rates paid by banks, and many potential buyers might be waiting for the market to bottom out before considering new purchases. Also, layoffs and other disruptions from the pandemic have left many people wary of spending.

The announcement by the People’s Bank of China said that effective Saturday, the interest rate for first-time housing provident fund loans for under five years will be cut by 0.25 percentage points to 2.35 percent. The rate for loans over five years was reduced by 0.25 percentage points to 2.85 percent.

Minimum down payment for loans for first homes will be 15 percent of the purchasing price. For second homes, it will be 25 percent, it said.

READ: China set to post slowing growth on housing, consumption woes

Earlier Friday, officials of the National Bureau of Statistics acknowledged that domestic demand — spending by consumers and businesses — remained “insufficient” and said the government was considering further ways to revitalize the property industry after housing prices sank 9.8 percent in January-April from a year earlier.

Foundation for recovery

“The complexity, severity, and uncertainty of the current external environment are significantly increasing. There is insufficient effective domestic demand, high business pressure, and many risks and hidden dangers,” said Liu Aihua, a spokesperson for the bureau.

“The foundation for recovery needs to be strengthened,” Liu said.

The State Council, China’s Cabinet, was due to hold a news conference later Friday focusing on the property industry.

One of the key strategies being rolled out involves local governments buying apartments that have gone unsold due to weak demand, to be rented out as affordable housing in trial programs that appear to have become national policy.

The financial news outlet Caixin reported that the housing ministry, the central bank, other government agencies, and state-owned banks were setting up a joint task force to brainstorm ways to revitalize the industry.

China’s economy grew at a robust 5.3 percent rate in the first quarter of this year, but that is relatively slow for a developing economy, and signs of weakness have persisted.

Investment in fixed assets up

The report Friday by the National Bureau of Statistics showed factory output was up 6.7 percent in April from a year earlier and investment in fixed assets such as factory equipment climbed 4.2 percent.

READ: China industrial output picked up, retail sales slowed in April

But housing starts fell almost 25 percent year-on-year and sales as measured by floor area were down 20 percent. Financing for property projects fell 25 percent.

Retail sales rose only 2.3 percent in April.

Officials said they expected demand to rebound as the government carries out policies aimed at getting households to sell off old cars and appliances and buy new ones.