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China’s big move to end real estate crisis; expert explains how this will impact Beijing’s economy

Beijing: The authorities in China recently announced a comprehensive package of measures to revive the real estate sector in the communist country, boosting the stocks and bonds in the last two days.

The Chinese government on Friday released a 16-point playbook for financial officials that is aimed at helping both developers and buyers. The key measures include allowing banks to extend maturing loans to developers, supporting property sales by reducing the size of down payments and cutting mortgage rates, boosting other funding channels such as bond issues, and ensuring the delivery of pre-sold homes to buyers.

The rescue package is being viewed by many analysts as the strongest signal yet from the Chinese authorities that a two-year crackdown on the sector is now over. In August 2020, the government began trying to rein in excessive borrowing by developers to curb runaway house prices.

Vikram Oza explains how this will impact the Chinese economy

China’s real estate came down crashing a few months ago when the government limited debt to developers. When the debt was limited to developers, many found it impossible to complete projects which set off a chain of events that hurt China’s economy.

At least 70 percent of China’s GDP relies on the real estate sector and when developers lost the ability to give home buyers their properties, it led to buyers losing confidence in the sector and the entire real estate sector of China. So, housing sales touched all-time lows. Several Chinese mortgage home buyers started defaulting on their commitments too.

Now, China has announced a 16-page playbook to finance the ailing real estate sector. It includes packages for buyers as well as developers and the first point lays out rules for financers to treat state and private developers equally and support those who have sound corporate governance.

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