China's real estate sector is navigating through turbulent waters as two of its largest developers, Evergrande and Country Gardens, face severe financial distress. Evergrande has declared bankruptcy, while Country Gardens is teetering on the brink of default. These developments signal significant challenges for an industry that accounts for approximately 30% of China's GDP, up from 10% in 2000.
Real estate plays a pivotal role in China's economy, serving as the primary collateral for loans and a major revenue source for local governments through land sales. Additionally, it represents nearly two-thirds of household wealth, underscoring its importance to both the economy and everyday lives.
The sector's woes stem from excessive reliance on infrastructure investments and hyper-leveraged real estate ventures, leading to diminished productivity. According to the Wall Street Journal, the investment required to generate GDP growth has increased from $3 per dollar in the 1990s to $9 today, highlighting a troubling trend.
Recognizing the critical need to stabilize the market, Chinese leadership is implementing a range of measures aimed at promoting the healthy development of the real estate sector without resorting to blanket guarantees. These measures include increasing affordable housing, transforming urban villages, constructing both leisure and emergency public infrastructure, and revitalizing idle properties.
New policies allow borrowers with existing personal housing loans for first homes to apply for replacement loans with lower interest rates. Additionally, for 2024 and 2025, taxpayers selling their homes and re-entering the market within a year will receive a personal income tax refund on the sale.
Major cities like Shenzhen are rolling back strict home purchase limits to curb speculation and have relaxed eligibility criteria for homebuying, affecting non-residents and divorcees. Other first-tier cities, including Beijing, Shanghai, and Guangzhou, along with provincial capitals like Haikou, Wuhan, and Xi’an, are offering first-home mortgage treatments regardless of previous ownership. Jilin Province is introducing incentives to encourage farmers to purchase homes in urban areas.
The sustainability of these measures remains uncertain. The government plans to continue monitoring the market and adjusting policies as needed to ensure long-term stability and to establish a new development model for the real estate industry, focusing on improving living standards through affordable housing and enhanced public services.
Reference(s):
cgtn.com
