China Drops Mortgage Rate Floor, Rolls Out Home-Buying Scheme
China's finally getting serious about rescuing the country's beleaguered property market.
On Friday, more than two years into a severe downturn which undercut consumer sentiment and weighed heavily on growth, Beijing rolled out a series of measures to stanch the bleeding, including a PBoC-backed relending scheme aimed at encouraging state-owned enterprises to buy up hundreds of billions of yuan in unsold homes.
The central bank will extend up to CNY300 billion in low-interest, one-year loans t
We will make you like this. Or else.
When reading about China, I always need help understanding the scale of things. CNY 300BN (USD 40BN) sounds like a lot. Is it?
I’m reading China has around 650MM sq meters of completed but unsold homes (equivalent to 8MM units, assuming 80 sqm/unit incl common area) and in January the average home sale price was 15,000 CNY/sqm. Suppose haircut by 30%, then CNY 300BN buys 4-5% of completed+unsold homes.
Not obvious to me how buying a few percent of inventory at a crippling haircut restores market confidence. Maybe it accelerates price decline, like ripping off a blindfold and exposing true “values”.
Targeting the spend on selected top cities doesn’t help, because avg price/sqm there is 3-4X higher than the national average, and I think the unsold house problem is biggest in 2nd/3rd tier cities.
If the goal is to bailout selected developers and their LFG creditors, and/or engineer a big rally in developer equities, the spend could be further targeted to the lucky ones. That could “work”, but on what problem?
If the goal is to accumulate a large stock of SOE-owned housing, then the haircut could be truly savage, maybe SOEs could buy as many as 1MM units. My understanding is that newly completed+unsold homes are typically bare shells, requiring more investment to be inhabitable. Is there enough need for affordable housing to merit cratering the housing market?
(Since China has by some estimates 60 to 80 million units of owned+vacant housing, incentives, mandates, and penalties would seem a more effective way of creating affordable housing – assuming enough demand.)
Not a China expert, pulled those numbers from sources that seem reliable but none self-verified.
JL – correct on the assumption that most interiors are unfinished. Typically, a buyer just gets an empty shell which they must finish with plumbing, appliances, light fixtures and such.
I wonder how the math on use as affordable housing works. Say “affordable” for low-income Chinese household means CNY 2,000/mo (CNY 24,000/yr) for an 80 sqm flat. That’s only CNY 300/sqm/yr. So what can an SOE pay per sqm to purchase and finish the unit, to have any hope of repaying the debt? If it pays CNY 10,000/sqm, then just 3% interest is than CNY 300/sqm – without making the shell habitable, G&A, or principal repayment.
No idea what the numbers actually are, by city, but in the US, housing affordable for low-income families generally has to be acquired using subsidized funds (taxpayer money) as it won’t support even below-market debt rates. In China the house price-to-income ratio is so absurdly inflated than I imagine this is also true.
(Average disposable income per capita CNY 40,000, average house price over CNY 1MM – don’t see how all of Xi’s men can hold Humpty Dumpty together.)