China unveils fresh measures to tackle property crisis, boost growth

On Friday, China unveiled a series of new measures to revive its struggling property market after recent data showed housing prices have fallen nearly 10% since the beginning of the year.

The central bank announced that it would lower the minimum down payment for mortgages and remove the floor on interest rates for first and second homes. This move aims to address the ongoing slump in China’s housing market, which has been in decline since a crackdown on excessive borrowing by property developers a few years ago. This downturn has affected various industries, including home furnishings, appliances, and construction, slowing down growth in the world’s second-largest economy.

Many property developers, responsible for transforming urban landscapes across China with high-rise apartments, have defaulted on their debts, leading to numerous unfinished projects. Vice Premier He Lifeng emphasized the government’s commitment to addressing the risks associated with unfinished commercial housing and ensuring the delivery of guaranteed housing.

The latest efforts to encourage home buying come after previous measures, such as interest rate cuts and government-backed financing, failed to attract buyers. These earlier attempts were hindered by developers’ struggles to complete housing projects that had already been sold and paid for.

The People’s Bank of China announced that starting Saturday, the interest rate for first-time housing provident fund loans for under five years would be cut by 0.25 percentage points to 2.35%, and for loans over five years, the rate would be reduced to 2.85%. Additionally, the minimum down payments for first homes will be set at 15% of the purchase price, and 25% for second homes.

These measures, which bring down payment levels and mortgage interest rates to historic lows, demonstrate the Chinese leadership’s determination to stabilize the real estate market. According to Chen Wenjing of China Index Holdings, lowering the down payment threshold and home purchase costs is likely to boost the willingness of residents to buy homes. If major cities adopt related measures, it could further improve market sentiment.

Dong Jianguo, vice minister of Housing and Urban-Rural Development, stressed the importance of ensuring that homebuyers receive what they paid for, and suggested that courts may need to intervene in cases where this is not possible. He emphasized that protecting the legitimate rights and interests of homebuyers should be a top priority in judicial proceedings.

Earlier in the day, officials from the National Bureau of Statistics acknowledged that domestic demand—spending by consumers and businesses—remained “insufficient.” They indicated that the government is considering additional measures to revitalize the property industry, after housing prices fell 9.8% from January to April compared to the previous year.

Liu Aihua, a spokesperson for the bureau, noted the increasing complexity, severity, and uncertainty of the current external environment, highlighting the need to bolster the foundation for economic recovery. One key strategy involves local governments purchasing unsold apartments to be used as affordable housing, a practice that has evolved into a national policy.

As part of the latest relief measures, the central bank is establishing a 300 billion yuan ($42 billion) fund to finance the purchase of unoccupied housing by state-run companies and local governments for use as affordable housing.

Despite a robust 5.3% growth rate in the first quarter of this year, which is relatively slow for a developing economy, signs of weakness persist in China’s economy. The National Bureau of Statistics reported on Friday that factory output increased by 6.7% in April from a year earlier, and investment in fixed assets like factory equipment rose by 4.2%. However, housing starts dropped nearly 25% year-on-year, sales measured by floor area decreased by 20%, and financing for property projects fell by 25%. Retail sales saw a modest increase of only 2.3% in April.

Officials are optimistic that demand will rebound as the government implements policies aimed at encouraging households to replace old cars and appliances with new ones.