These and other measures announced Friday marked Beijing’s latest efforts to address issues in the massive real estate sector.
The People’s Bank of China will provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
Also Friday, the PBOC removed a floor on mortgage interest rates, and lowered the minimum down payment ratio for first- and second-time home buyers.
BEIJING — Chinese authorities on Friday pledged new support for state-owned enterprises to enable them to buy unsold apartments, in an effort that could help developers get more funding to finish construction on pre-sold properties.
These and other measures announced Friday marked Beijing’s latest efforts to address issues in the massive real estate sector.
“I think it is encouraging that the policy is taking a turn of direction trying to support the housing market,” said Zhu Ning, a professor of finance at Tsinghua University and author of the book “China’s Guaranteed Bubble.”
People’s Bank of China Deputy Governor Tao Ling told reporters at a briefing Friday the central bank would provide 300 billion yuan ($42.25 billion) to financial institutions to lend to local state-owned enterprises (SOEs) so they can buy unsold apartments that have already been built.
The central bank expects the support to release 500 billion yuan in financing for such purchases, which the SOEs could turn into affordable housing.
The real estate companies can then use funds earned from those sales to complete construction on other apartments, the central bank said.
As for unfinished, pre-sold properties, the National Financial Regulatory Administration Deputy Director Xiao Yuanqi told reporters that commercial banks have provided 935 billion yuan in loans to finish construction on whitelisted projects since the program was released in January.
“The government’s purchase of housing inventory can inject more liquidity to developers, who could then have more resources for housing delivery,” Larry Hu, chief economist at Macquarie, told CNBC. “Finally the government stepped in as the buyer of the last resort.”
“At this stage, it’s mainly SOEs and local governments to implement the policies, but their resources may be too limited to move the needle at the macro level,” he said. “Later on, we might see more efforts from the central government.”
Developers “that must go bankrupt should go bankrupt, while those that need to be restructured should be restructured,” Dong Jianguo, deputy head of the ministry of Housing and Urban-Rural Development, told reporters in Mandarin, translated by CNBC. He said homebuyers’ interests and rights should be prioritized, and those that violate the law should be punished.
To be clear, PBOC is lending money to SOEs (the central government financial institution is lending money to local government entities). The SOEs are then purchasing assets from the real estate companies.
The government is lending money to itself (loan). The government is then giving that money to the property owners (bailout).
It is not “giving” that money to the property owners. It is exchanging that money for property. It is not free money.
You don’t actually believe what you wrote, right? Because back in 2008, the US bought 60% of GM’s stock and over a trillion in mortgage backed securities (the bad debts that destroyed the bank’s books). Yet, this was clearly a bailout, despite the fact that the US received property in exchange for its cash.
The difference here is that the bad ones are going to be allowed to go bankrupt. The ones that are fine will be bought.
Apologies, I’m not sure I’m following your point here. Please correct me if I’m misinterpreting you (which is definitely possible). Are you saying “the government purchasing inventory from a business (for the purpose of helping that business/industry) that is struggling to sell that inventory is only a bailout if that business would have gone bankrupt but for the government’s purchase. If that business would have survived, then it is not a bailout.”?
No. I’m saying that some of these properties will sell perfectly fine and aren’t bad properties but they won’t sell soon enough for the companies currently holding them. Other properties are genuinely bad and will not sell and the companies that built them should rightfully be cast into the sea.
The good properties are essentially just being shifted from the companies about to go bust to the SOEs which can wait for as long as it takes to sell them. While the companies that currently own these good properties can not wait that long.
The state is not buying stocks, or securities here, but physically existing real estate and turning it into a state owned good, not one owned by a private landlord
Sorry, I’m not sure I’m following. Are you saying “if, in exchange for its cash, the government receives real property, it is not a bailout. In contrast, if the government receives securities, then it is.”?
To be sure, I think China’s bailout of the real estate sector is good here - if developers are slow rolling the construction of homes because they need to sell their inventory first, then purchasing the inventory (or having SoE do so, as the case may be) is good. But that doesn’t have anything to do with whether it is a bailout.
You do realize that you’ve moved the goal posts, right? Have you accepted that this action is a bailout?
The assets being purchased are overvalued (which is why they haven’t been sold already), though presumably the SOEs will purchase in bulk and negotiate a lower price-per-unit than an individual homebuyer would. This is speculative because the SOE purchases are still in the future. The amount that a real estate company gets from their particular SOE probably depends on how much of a bribe the real estate owner is able to give to the relevant government official(s), and the most likely outcome is that the real estate owner transfers some of the purchase money back to the government official (kickbacks).
Yes the government will acquire assets in exchange for the money, but (a) this is not a loan, it is a government purchase of assets from companies that could not sell those assets normally, which is a bailout; and (b) the real value of the assets is highly debatable - if they could not be sold, then they are technically worth nothing.
No.
No it isn’t. Because they are not going to purchase assets that otherwise can not be sold at or above the purchase value. Those assets and the companies holding them will just be allowed to go bankrupt. These other assets that will be purchased are perfectly fine assets that could be sold at the value of purchase but will otherwise take too much time to sell for these companies under the current conditions. The SOEs aren’t going to take loans to buy assets that won’t pay for those loans, they would not accept this. You are imagining the for-profit SOEs to be submissive to central governance, you are imagining what you know - a fully nationalised company like what you’re used to in the west - but this is not correct as SOEs routinely prevent things that are not in their interests, they do not function submissively to government.
The assets in question already can’t be sold. This point is really not debatable. If it were otherwise, there would be no issue and no need for a government bailout.
Let me know when this actually happens.
And those ‘conditions’ are… that the value of the entire property market (and every unit in it) is inflated, hence the inability to sell.
No, actually. What I am imagining is that the people in charge of the SOEs will take the government money and then make deals with local property owners that will enrich both, at the expense of the people, because that is what always happens everywhere. Providing housing is not the goal here for the people in power. Wealth transfer is the goal.
You know as well as I do that assets that can’t be sold now will be sold later when the conditions change.
I’m honestly not sure if I want to continue talking to you. If you can’t acknowledge that a house with nothing around it not being sellable now will eventually be sold when it has businesses and other things around it then there’s not much point in conversing because you’re not acting in good faith.
Shifting these perfectly good properties from companies that are about to go bust and can’t just wait for the time when they’ll sell to different companies that CAN wait until those conditions is perfectly fine.
Do you also believe that the “ghost cities” are still empty? Cause they’re not. They just took time and the right conditions being created for people to move into them because Chinese construction and planning has operated on a much more longterm system.
The whole controlled deflation of the real estate sector and the crackdown on speculation that has soured so many upper class chinese wouldnt have been happening if corruption was still endemic at the level you are describing. Thats a view of China from 15 years ago, not now. Still a lot of corruption but not nearly enough to play a systemic role in industry and sector wide policies and trends like what you are descibing. This shows a wrapped view of current goals and competence of the Chinese state machinery that makes your other speculation about the rates they are gonna pay, how valuable these are gonna be in state hands or the financial freedom and speculative space these private companies may have going forward (tregarding the use and obligations from the money from said sales) more guesswork on shakey grounds