China unveils property stimuli amid falling sales

China on Friday unveiled an unprecedented package of measures to encourage homebuyers to enter markets, after property sales and investment fell in the first four months of this year. 

The People’s Bank of China (PBoC) said it will establish a nationwide program to unleash 300 billion yuan (US$41.5 billion) in cheap funding to help state-owned-enterprises (SOEs) buy unsold homes.

The PBoC and the National Financial Regulatory Administration cut the minimum down payment ratios for first-time purchases from 20% to 15% and second-time purchases from 30% to 25%.  

It also said the floor level of commercial mortgage rates for first and second homes will be canceled across the country. 

Central bank branches can now determine the lower limits of mortgage rates in accordance with local conditions, the central bank said. Financial institutions should set the floor lending rates based on their business conditions and borrower risks, it added.

The PBoC will also lower the loan rates of the individual housing provident fund, a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees, by 0.25 percentage points from May 18.

Hong Kong-listed Chinese property developers’ shares continued to surge on Friday after many of them more than doubled during the week ended Thursday. 

Shares of China Vanke Co increased 19.4% to close at HK$6.84 (88 US cents) on Friday while shares of Sunac China rose 25.9% to HK$1.85. 

Agile Group gained 24.3% to 92 HK cents while Guangzhou R&F Properties surged 12.7% to HK$1.33. 

Poor property figures

Meanwhile, the National Bureau of Statistics (NBS) released new economic data for January-April 2024 on Friday.

In the first four months, China’s property investment fell 9.8% year-on-year to 3.09 trillion yuan. The figure has been declining for the 23 consecutive months.

Residential property investment decreased 10.5% to 2.34 trillion yuan in January-April from a year ago.

New property sales fell 28.3% to 2.81 trillion yuan for the same period. New home sales slumped 31.1%. 

New property sales volume decreased 20.2% to 293 million square meters. New home sales volume dropped year-on-year by 23.8%.

In April, the average home price in 70 largest Chinese cities fell 3.1% from a year ago, according to the NBS. It’s the biggest year-on-year decline since November 2014.

“March and April are a traditional high season but both new home sales and sales volume fell year-on-year during the period, showing that the current situation of the Chinese property markets is severe,” said Wang Xiaoqiang, chief analyst with the Zhuge Real Estate Data Research Center. 

Wang said new home sales volume in the first four months of this year decreased 26.4% from the same period in 2022, when there were still Covid rules in most Chinese cities.

Zhang Hongwei, founder of Jingjian Consulting, said property activities may improve if some urban commercial banks start offering mortgage borrowers10-20% discounts in the coming few months. 

SOE home purchases 

Chinese Vice Premier He Lifeng said at a teleconference on Friday that the government will increase efforts to address risks concerning unfinished commercial housing projects, ensure the delivery of housing projects and push forward the reduction of property inventory in the markets.

He said local governments are allowed to buy unsold homes at reasonable prices and convert them into affordable or rental housing units.

PBoC Deputy Governor Tao Ling said that within the coming year 21 national banks, including China Development Bank, policy banks, state-owned commercial banks, Postal Savings Bank of China and joint-stock commercial banks, will be provided with loans totaling 300 billion yuan at an interest rate of 1.75%. The scheme can be extended four times. 

She said the central bank will offer loans to national banks to cover 60% of their lending in the scheme, meaning that the banks will have room to lend another 200 billion yuan to SOEs, bringing the total up to 500 billion yuan.

She said national banks should offer loans to SOEs designated by local governments in accordance with market principles while local governments should decide by themselves whether they should join the scheme.

“The SOEs for home purchases will be designated by local governments,” Tao said. “They must not be local government financing vehicles (LGFVs) or companies related to local governments’ shadow financing.” 

China’s total local government debt, including LGFV loans and shadow credit, was about 90-110 trillion yuan, or 75-91% of the country’s GDP in 2022, according to a research report published last November by the 21st Century China Center of the School of Global Policy and Strategy at the University of California San Diego. 

Read: China to reboot markets with SOE home purchases

Follow Jeff Pao on X: @jeffpao3