China lifts ownership restrictions on supply to reverse economic downturn

China lifts ownership restrictions on supply to reverse economic downturn

For much of the past year, China’s economy has reeled under Xi Jinping’s dual campaigns to stem soaring property prices and stamp out all traces of Covid-19 from within the country’s borders.

Now, as he scrambles to ease pandemic restrictions, China’s leader, Mr Xi, is also signaling a reversal of his crackdown on real estate, a tacit acknowledgment of the economic pain and public frustration the two measures have provoked.

According to a notice distributed to the country’s financial institutions and policy-making officials on Friday, China’s central bank and top bank regulator have enacted a far-reaching series of measures aimed at boosting real estate demand and supply. The authenticity of the document has been confirmed by persons close to the Central Bank.

The new guidelines, signed by Mr Xi, lift some of the previous restrictions aimed at curbing developer debt and give lenders permission to lend to builders in financial difficulty, according to policy-making officials .

“These real estate measures, on top of announcements of Covid easing, are a clear indication that Beijing’s efforts to support growth are intensifying,” said Michael Hirson, head of China Research at 22V Research, a New York-based firm that reports focuses on investment strategies.

While local governments across China have taken more modest measures to ease some of the pressure real estate companies are facing, the new bundle of 16 measures represents the largest single step yet to salvage a sector that has been a key growth pillar for decades the second largest economy in the world.

The real estate measures had led to falling home sales and impacted overall growth in the real estate sector.


Photo:

Cfoto/Zuma Press

Chinese home prices have outpaced overall economic growth for decades.


Photo:

Anthony Kwan / Bloomberg News

The new measures are “massive in scope” and amount to “targeted credit easing for the real estate industry,” said Dan Wang, chief economist at Hang Seng Bank China, contrasting with previous rounds of phased support measures.

As developers face looming loan repayment deadlines, regulators are keen to avoid systemic risks in the financial sector sparked by a surge in potential defaults, Ms Wang said. Even so, she added, “homebuying demand remains weak,” with any reversal in housing market sentiment likely to depend on the longer-term outlook for the economy.

The easing of property and Covid restrictions comes just weeks after Mr Xi secured another five years in power at a closely watched Communist Party congress. As Mr Xi has consolidated political control, he now faces the prospect of a third term amid the country’s worst sustained economic slowdown in decades.

Much of the economic weakness is a direct result of his campaign-style move to crush Covid and, since last year, tame a four-decade-old property market boom that officials have warned could be a bubble.

The real estate measures led to increased defaults by developers, increasing bad debts at banks, falling home sales and investments – all of which have weighed heavily on overall growth in recent quarters.

China’s gross domestic product grew just 3.0% in the first nine months of 2022, well below the government’s official full-year target of about 5.5% set in March.

The China Evergrande Group, long the country’s largest developer, is now its largest debtor.


Photo:

ALYSONG/REUTERS

Chinese house prices have outperformed the rate of overall economic growth for decades, driving more loans into property speculation and driving property values ​​further higher. In recent years, authorities have repeatedly tried to break the vicious circle with various tightening measures, only to relax them when growth appears threatened.

As of 2019, the combined value of Chinese home and developer inventory was $52 trillion, according to Goldman Sachs Group inc,

twice the size of the US housing market.

As Beijing tightened the screws on developers last year — and then reaffirmed its commitment to the stricter rules — several private developers began to teeter on the brink of crisis. Among the best known was the China Evergrande Group,

long the country’s largest developer and now its largest debtor, although concerns have spread to other large private players.

More than 30 developers have defaulted on their dollar-denominated bonds. International investors have dumped their bonds, driving price levels to new lows and confronting even the strongest private property developers with selling new debt.

Chinese real estate developer shares surged Monday after the news. country garden stocks co

, one of the country’s biggest real estate companies by deal deals, surged 40% in early Hong Kong trade, pushing earnings up more than 200% this month. A Hang Seng sub-index for real estate stocks rose 7%.

Dollar bond prices from developers who have not defaulted on their debt – including Agile Group Holdings GmbH.

and Longfor Group Holdings GmbH.

– also rose sharply from depressed levels as investors bet on their potential recovery.

As general economic troubles mounted this year, regulators and regional governments moved only modestly to try to stave off a full-blown housing crisis, introducing limited measures such as tax breaks, cash bonuses and lower down payments, and providing window advice to banks to increase housing loans. But these incremental moves have so far failed to reverse sentiment and boost the sector.

In October, sales by the country’s top 100 real estate developers fell to the equivalent of $76.7 billion, down 28.4% year-on-year and the 16th consecutive month of a year-on-year decline, according to China Real Estate Information Corp., an industry data provider.

As foreign investors and homebuyers lose confidence in China’s real estate market, developers are offering cars and pigs to boost sales. The WSJ is examining ads and policies to see how the country’s housing turmoil could affect the global economy. Photo composite: Sharon Shi

Now, with a new leadership team in place after the congress — one packed with party members loyal to Mr Xi — the top leader is moving toward a more concerted approach to prop up the economy, part of a broader effort to prepare for greater competition to the US

“It appears that the space for policy easing has expanded after the convention,” said Larry Hu, a Hong Kong-based economist at Macquarie. “After the effects of previous efforts have proven muted, policymakers are now giving a big push to keep credit flowing into the real estate sector.”

Loans were a particular headache for developers, as many had relied on large loans to build new projects and stay afloat. Funds raised by China’s real estate developers fell 24.5% in the first nine months of this year, according to data from the National Bureau of Statistics.

The new notice, issued jointly by the People’s Bank of China and the China Banking and Insurance Regulatory Commission, does not represent a complete reversal of Mr Xi’s previous efforts to curb exuberance in the sector.

“Policymakers are now giving a big push to allow credit to flow into the real estate sector.”


— Larry Hu, a Hong Kong-based economist at Macquarie

The notice, heralded as a package to ensure “stable and healthy development” of the sector, still underscores the need to curb speculative property purchases and reiterates Xi’s mantra that “housing is for living, not speculating.”

Under the new measures, outstanding bank loans from developers and some types of non-bank loans maturing within the next six months can be extended by one year. The repayment of property developer bonds can also be extended.

In addition, banks are being encouraged to offer financing for unfinished housing projects and to negotiate with homebuyers over an extension of mortgage repayments, in an apparent attempt to defuse growing resentment from those who have been boycotting mortgage payments since the summer.

Banks are also encouraged to offer financing to support the acquisition of real estate projects by financially sound developers from weaker ones.

According to Yan Yuejin, research director at the Shanghai-based E-House China R&D Institute, the new guidelines require financial institutions to treat state-owned and private developers equally, a measure apparently designed to offset banks’ reluctance to lend to private developers , a research company.

“Regulators are making extensive efforts to seek a soft landing for the real estate sector,” said Bruce Pang, chief China economist at Jones Lang LaSalle. However, given the strong focus of the measures on improving liquidity for defaulting developers, he said, “These measures are unlikely to be enough to avert the physical market slowdown.”

—Rebecca Feng contributed to this article.

Write to Lingling Wei at Lingling.Wei@wsj.com, Cao Li at li.cao@wsj.com, and Stella Yifan Xie at stella.xie@wsj.com

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