These and other measures announced Friday marked Beijing’s latest efforts to address issues in the massive real estate sector.
The People’s Bank of China will provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
Also Friday, the PBOC removed a floor on mortgage interest rates, and lowered the minimum down payment ratio for first- and second-time home buyers.
BEIJING — Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments, in an effort that could help developers get more funding to finish construction on pre-sold properties.
These and other measures announced Friday marked Beijing’s latest efforts to address issues in the massive real estate sector.
“I think it is encouraging that the policy is taking a turn of direction trying to support the housing market,” said Zhu Ning, a professor of finance at Tsinghua University and author of the book “China’s Guaranteed Bubble.”
People’s Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
The central bank expects the support to release 500 billion yuan in financing for such purchases, which the SOEs could turn into affordable housing.
The real estate companies can then use funds earned from those sales to complete construction on other apartments, the central bank said.
As for unfinished, pre-sold properties, the National Financial Regulatory Administration Deputy Director Xiao Yuanqi told reporters that commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January.
“The government’s purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery,” Larry Hu, chief economist at Macquarie, told CNBC. “Finally the government stepped in as the buyer of the last resort.”
“At this stage, it’s mainly SOEs and local governments to implement the policies, but their resources may be too limited to move the needle at the macro level,” he said. “Later on, we might see more efforts from the central government.”
Developers “that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured,” Dong Jianguo, deputy head of the ministry of Housing and Urban-Rural Development, told reporters in Mandarin, translated by CNBC. He said homebuyers’ interests and rights should be prioritized, and those that violate the law should be punished.
The bankers are bailing out the real estate companies. I’m not clear on why anyone is praising this as some socialist paradise behavior, it’s not like the SOEs are going to turn around and give the housing to the people for free. This is exactly the same kind of behavior as happens in Western/capitalist nations, where the government pushes the banks to extend loans to major companies that are struggling financially.
“inject more liquidity to developers” e.g. transfer of government (social) wealth to property owners. Privatize the gains and socialize the losses.
Because the property prices are too high for average people to afford, and more than the properties are actually worth.
Yeah you could call it state capitalism or a bailout, the end result is more affordable housing. I’d rather bailout housing speculators than market speculators.
I don’t know if it is “capitalism” per se, but it is the same kind of behavior as seen in capitalist countries. It is 100% a bailout.
Is it? based on what? the only financial impact of this is, again, to transfer social wealth to property owners.
Great, they lowered the barrier-to-entry for getting into debt. They haven’t lowered the inflated prices on the housing.
It’s not a bailout if it’s a loan. It’s a loan.
To be clear, PBOC is lending money to SOEs (the central government financial institution is lending money to local government entities). The SOEs are then purchasing assets from the real estate companies.
The government is lending money to itself (loan). The government is then giving that money to the property owners (bailout).
It is not “giving” that money to the property owners. It is exchanging that money for property. It is not free money.
You don’t actually believe what you wrote, right? Because back in 2008, the US bought 60% of GM’s stock and over a trillion in mortgage backed securities (the bad debts that destroyed the bank’s books). Yet, this was clearly a bailout, despite the fact that the US received property in exchange for its cash.
The difference here is that the bad ones are going to be allowed to go bankrupt. The ones that are fine will be bought.
Apologies, I’m not sure I’m following your point here. Please correct me if I’m misinterpreting you (which is definitely possible). Are you saying “the government purchasing inventory from a business (for the purpose of helping that business/industry) that is struggling to sell that inventory is only a bailout if that business would have gone bankrupt but for the government’s purchase. If that business would have survived, then it is not a bailout.”?
The state is not buying stocks, or securities here, but physically existing real estate and turning it into a state owned good, not one owned by a private landlord
Sorry, I’m not sure I’m following. Are you saying “if, in exchange for its cash, the government receives real property, it is not a bailout. In contrast, if the government receives securities, then it is.”?
To be sure, I think China’s bailout of the real estate sector is good here - if developers are slow rolling the construction of homes because they need to sell their inventory first, then purchasing the inventory (or having SoE do so, as the case may be) is good. But that doesn’t have anything to do with whether it is a bailout.
You do realize that you’ve moved the goal posts, right? Have you accepted that this action is a bailout?
The assets being purchased are overvalued (which is why they haven’t been sold already), though presumably the SOEs will purchase in bulk and negotiate a lower price-per-unit than an individual homebuyer would. This is speculative because the SOE purchases are still in the future. The amount that a real estate company gets from their particular SOE probably depends on how much of a bribe the real estate owner is able to give to the relevant government official(s), and the most likely outcome is that the real estate owner transfers some of the purchase money back to the government official (kickbacks).
Yes the government will acquire assets in exchange for the money, but (a) this is not a loan, it is a government purchase of assets from companies that could not sell those assets normally, which is a bailout; and (b) the real value of the assets is highly debatable - if they could not be sold, then they are technically worth nothing.
No.
No it isn’t. Because they are not going to purchase assets that otherwise can not be sold at or above the purchase value. Those assets and the companies holding them will just be allowed to go bankrupt. These other assets that will be purchased are perfectly fine assets that could be sold at the value of purchase but will otherwise take too much time to sell for these companies under the current conditions. The SOEs aren’t going to take loans to buy assets that won’t pay for those loans, they would not accept this. You are imagining the for-profit SOEs to be submissive to central governance, you are imagining what you know - a fully nationalised company like what you’re used to in the west - but this is not correct as SOEs routinely prevent things that are not in their interests, they do not function submissively to government.
The assets in question already can’t be sold. This point is really not debatable. If it were otherwise, there would be no issue and no need for a government bailout.
Let me know when this actually happens.
And those ‘conditions’ are… that the value of the entire property market (and every unit in it) is inflated, hence the inability to sell.
No, actually. What I am imagining is that the people in charge of the SOEs will take the government money and then make deals with local property owners that will enrich both, at the expense of the people, because that is what always happens everywhere. Providing housing is not the goal here for the people in power. Wealth transfer is the goal.
The whole controlled deflation of the real estate sector and the crackdown on speculation that has soured so many upper class chinese wouldnt have been happening if corruption was still endemic at the level you are describing. Thats a view of China from 15 years ago, not now. Still a lot of corruption but not nearly enough to play a systemic role in industry and sector wide policies and trends like what you are descibing. This shows a wrapped view of current goals and competence of the Chinese state machinery that makes your other speculation about the rates they are gonna pay, how valuable these are gonna be in state hands or the financial freedom and speculative space these private companies may have going forward (tregarding the use and obligations from the money from said sales) more guesswork on shakey grounds
By allowing developers to build more housing, they increase the supply of housing. Increased supply necessarily lowers cost.
But there are already a lot of unsold housing units. That is the asset that the SOEs are purchasing from the real estate companies.
The issue isn’t supply, it’s that the prices of the existing supply are too high for people to buy - because real estate has been used as a wealth growth vehicle in China exactly the same as in the US.
We’ve already tried this in the US - giving money to developers to increase the supply of housing. It hasn’t worked here, I’m not sure why it would work there unless the government actually caps the price of new units in order to force the construction of affordable housing.
Without additional regulation, this action is a wealth transfer, and nothing more.
Prices are falling for 2+ years now but they are very careful about it being gradual and controled. De-marketizing some housing stock (paying bellow market rates per unit mind you) by absorbing them into affordable state owned public housing initiatives will also relieve inventory while facilitating demand. Increasing the share of public housing is an obvious way to control prices and kneecap speculation potential in the sector going forward. The built housing is already there so making it public is an obvious step. The barriers and regulations against speculation ,overbuilding and corruption going forward for these private entities are a whole different thing and China has been pretty strict recently during this controled deflation of the sector
Are they just building to provide jobs and push the economy along?
That could be the case, but within the context of this article there’s no discussion of building new units. This is about the government purchasing unsold units from the real estate companies.
Based on what? there’s no discussion here of the housing prices being lowered, only of the government purchasing unsold units from real estate companies. At no point is there any indication that the government will provide those units to buyers at lower prices.
The government would need to spend more money, dept and productive capital and manpower to built the equivalent amount of units compared to what they buy from developers now. Also a lot of these are unfinished in various degrees too so in part jobs and construction under state hands or supervision will continue for those units for a productive end result
Sure, but that doesn’t mean the government will be providing the purchased units to people at lower cost.
This is a separate issue, as per the article:
Loans for completing unfinished properties are coming from commercial banks, which is different from the money that PBOC is loaning to the SOEs to purchase unsold units from the real estate companies.
Except that real estate is one of the few things that is very finite. If all the best places to build have already been developed (cheap, accessible, desirable) then it will cost the developers more and more to try to develop less accessible or desirable places. Any that try will find that their ability to make a profit will be greatly reduced and it would have been more “profitable” for the developer to just take the money from the state owned enterprises and retire.
Yes… and well, let’s extend a sort of best-case into the future:
This is bad. Either the developers have to build low-value units which they expect to be able to sell at lower cost than whatever the SOE will be selling units for, or they have to build high-value units which they expect they will be able to sell to wealthier clients who don’t want the units that the SOEs are selling.
If the former, then they will undercut the SOEs’ ability to sell the units they purchase, leaving the government holding bad assets. If the latter, then there will be no additional affordable housing built.
So I think you’re right, it would make sense for a lot of the developers to simply take the money from the SOEs and then leave the market.
Is the assumption that the SOE’s would offer properties for sale at all (instead of leasing) and for sale at lower than market value based on anything?
It absolutely is a possibility. But the SOE could take control of the property and be a landlord to the developers. Lease the land for 10, 20, 50 years but allow the developers to renovate, demolish, rebuild, etc. The developer gets to make some money but for a limited time frame and has more oversight when it comes to what they can get away with.
Hmm, this is specifically about the SOEs purchasing unsold (but finished) properties using loans from PBOC. There shouldn’t be any need for the developers to still be involved with the properties afterward. The SOEs should be making the housing available for use after purchase.
If the SOEs offer the properties for sale, they will have to lower the sale price in order to move the properties because they already aren’t selling at the current price (that’s the problem that the government is trying to solve).
But you’re right that leasing is an option, and could be a long-term income stream that could offset the debt being incurred with the loans. That might make sense.
Depends on how fast the SOE’s want the uninhabited properties to get lived in (used?). They could lower the asking prices some to encourage buyers (renters too?) but can also sit on vacant places longer than developers still needing to service debt could. Maybe this’ll manage a dip in the real estate market to be a wobble over time instead of a sudden bursting bubble.