MNI: China’s Property Measures Face CNY2 Trln Funding Gap

MNI (BEIJING) - Beijing will need to provide the housing market with additional policy measures to ensure the recent recovery's sustainability, including a further CNY2 trillion to support the government’s urban village renewal scheme and the purchase of unsold homes and idle land, advisors and analysts told MNI.

Government renewal and acquisition plans, which face challenges around price recognition and compensation standards, require at least CNY3.5-4 trillion to be fully implemented versus the CNY2 trillion available, noted Xie Yifeng, dean at the China Urban Real Estate Research Institute and a housing ministry consultant. 

Authorities may need to address this funding gap via increased special treasury issuance, while the People’s Bank of China might have to raise the scale of its pledged supplementary lending facility to help direct bank loans, he continued.

Concerns over long repayment cycles and the ability of borrowers to settle debts in full amid falling home prices had stunted lending by policy and commercial banks to the construction industry, Xie explained. Policy banks have only managed to lend a small fraction of special loans for urban village renovation – about CNY40 billion – compared to the CNY920 billion they agreed to earlier this year, he added.

GREEN SHOOTS

Home prices in 70 key cities stopped falling or saw declines ease significantly last month, with tier-one cities Shanghai and Shenzhen growing 0.3% and 0.1% m/m, said Li Yujia, chief research fellow at the Guangdong Urban & Rural Planning and Design Institute. 

While October’s rebound will likely continue into December following last week’s tax reductions aimed at lowering transaction costs and boosting upgrade demand, 2025’s performance will depend on policy announcements at next month’s Central Economic Work Conference and Politburo meeting, Li added. “Further improvements depended on October transaction volumes being maintained, the easing of secondary listings with deep price discounts and faster buying of properties and lands for public housing, as well as renovating one million urban village housing units,” he added.

However, Xie argued home prices needed six-to-nine months of consecutive growth supported by continuously rising sales before an inflection point could be confirmed. “The cash and housing vouchers offered to resettle urban village residents will support home prices bottoming out by boosting demand and expectations,” Xie said, urging authorities to expand the scale to 1.5 million housing units and shorten the implementation cycle to 12-15 months. 

MORE POLICIES

The sector must rebuild confidence by allowing developers to hasten debt rollovers and restructures, Xie added. Bank credit lines for whitelist housing projects, which were doubled to CNY4 trillion this year to help builders meet 2024’s 3.96-million-unit target, should maintain their scale in 2025 when another 3-4 million units will need to be delivered in addition to this year’s quota, he added.

Authorities should also expand policy support to cover commercial properties, including office buildings and flats built on commercial land, which have 40, and 50-year leases, and require higher downpayments, and mortgage rates, said Xie, noting their five-year plus de-stocking cycle in first-tier cities. “With progressive policy support, the market was expected to stabilise and bottom out over the next two years,” Xie said, noting a recovery from its trough would come after 2026. (See MNI: China Property To Stabilise Within A Year - Experts)