China Boosts Property Market Aid Amid IMF’s Slower Growth Forecast

Despite a series of measures aimed at bolstering the struggling property sector, Chinese markets saw a decline on Friday. This decline coincided with a forecast by the International Monetary Fund (IMF) that the Chinese economy will continue to slow down in the coming years.

According to the IMF report, the Chinese economy is expected to grow at a rate of 4.6% annually this year, down from 5.2% in 2023, with growth in 2028 projected at 3.4%. The report highlighted a significant drop in housing starts, which fell by over 60% from pre-pandemic levels due to a crackdown on excessive borrowing that began in 2020. This decline in housing starts was described as a pace “only seen in the largest housing busts in cross-country experience in the last three decades.”

In response to the slowdown in the property market, Shanghai’s benchmark composite index experienced a 1.5% loss, with the smaller market in Shenzhen falling by 3%. This decline marked the worst week for Shanghai’s index in five years.

The Chinese government has introduced measures to increase the supply of affordable housing and stimulate demand in the property sector. These actions come ahead of the annual meeting of the national congress, where the ruling Communist Party aims to showcase its leadership.

The challenges facing the real estate industry were further exemplified by the Hong Kong court’s order for the liquidation of China Evergrande, the world’s most heavily indebted developer with over $300 billion in liabilities.

China’s property sector accounts for nearly one-third of the country’s economic activity, and the industry-wide difficulties have had a negative impact on economic growth and eroded the confidence of both investors and consumers.

Despite the slowdown, the IMF report highlighted ongoing problems in the sector, including many developers being insolvent but avoiding bankruptcy due to accounting rules that allow them to delay recognizing losses on their loans. Additionally, the need for new housing is expected to decrease as the population shrinks and urbanization rates slow.

In response to the property market’s challenges, the Chinese government has expanded access to loans for developers, and various regions have issued “white lists” of projects eligible for lending. The central bank and State Administration of Financial Supervision have introduced 17 measures to support the rental housing market, with a focus on increasing the supply of affordable and commercial rental housing.

China’s high home ownership rate, estimated at around 90%, has led to initiatives aimed at strengthening the rental market to provide housing for those who cannot afford to purchase properties. Some local governments have also introduced preferential mortgage terms for families with multiple children.

The Ministry of Housing and Urban-Rural Development has identified a first batch of real estate projects eligible for loans and equity financing in eight cities or provinces, with financing requirements totaling 3.5 trillion yuan ($496 billion).