China pumps half a trillion dollars into beleaguered property sector. But that’s not enough
-
Loading... - Bagaskoro Irawan
- 28 Oct 2024
- 58 Views
- 0 Like
- 0 Comment
Chinese property shares experienced a significant decline on Thursday following the announcement of new measures aimed at revitalizing the struggling real estate market. Investors and economists criticized the measures as insufficient, leading to a sharp drop in confidence.
In response to disappointing economic data over the summer, which raised concerns about China potentially missing its 5% growth target, President Xi Jinping approved a much-anticipated stimulus package focused primarily on monetary measures in late September. Economists had been anticipating an additional stimulus package worth up to 10 trillion yuan (approximately $1.4 trillion) to restore optimism in the world’s second-largest economy.
However, the recent press conference held by the Ministry of Housing and Urban-Rural Development failed to meet these expectations, leading to a negative reaction from the market.
Shares in China’s benchmark CSI300 real estate index plummeted by 5%, reversing previous gains. The Shanghai Composite index remained flat, while the Hang Seng index in Hong Kong saw a modest increase of half a percent, having given up larger gains earlier in the day.
Larry Hu, chief China economist at Macquarie, commented on the situation, stating, “The housing supports announced today remain incremental in nature. They can help ease the financial distress for developers but may not be enough to stabilize the housing market.”
During the press conference, the Housing Ministry announced plans to nearly double bank lending to designated property projects, aiming for a total of 4 trillion yuan ($561 billion) by the end of 2024. This follows the introduction of a “whitelist” of construction projects in January, which allows banks to provide loans to help complete these projects.
Housing Minister Ni Hong expressed confidence in the recovery of the real estate market, emphasizing a focus on implementation moving forward. Xiao Yuanqi, deputy director of the Financial Supervision Administration, noted that as of October 16, approved loans for the “whitelist” projects had already reached 2.23 trillion yuan ($313 billion).
The struggling property sector is widely viewed as a significant contributor to China’s broader economic challenges. Once accounting for as much as 30% of economic activity, the sector now represents about a quarter of the economy and 70% of household wealth.
In September, central bank governor Pan Gongsheng attempted to address concerns about slowing growth by announcing cuts to the seven-day reverse repo rate from 1.7% to 1.5% and reducing the reserve requirement ratio for banks by half a percentage point. These measures are expected to free up around 1 trillion yuan ($142 billion) for new lending. Additionally, cuts to existing mortgages and a reduction in the minimum down payment for second-time homebuyers from 25% to 15% were introduced.
The real estate market began to cool in 2019 and fell into a deeper crisis two years later due to a government clampdown on developers’ borrowing. This has led to a significant decline in property prices and a loss of consumer confidence. Individuals and companies are now focused on preserving wealth by selling assets and reducing consumption and investment, further hindering economic growth.
While the Chinese government is taking steps to support the beleaguered property sector, the measures announced thus far have not been enough to restore investor confidence. The ongoing challenges in the real estate market continue to pose risks to the broader economy, highlighting the need for more comprehensive and effective policy interventions to stabilize this critical sector. As the situation evolves, stakeholders will be closely monitoring the government's next moves and their potential impact on economic recovery.
