Why Beijing Won’t Bail Out Its Real Estate Sector

BEIJING — China’s central government is unlikely to spend billions of dollars to rescue its struggling property sector, analysts say, even if foreign investors want a massive bailout.

1 year from Chinese developer Evergrandedebt problems have begun to plague investors, and the country’s property problems are only getting worse. Some homebuyers refused to pay their mortgages due to construction delays, and property sales plummeted. Even the once-healthy developers are struggling to pay off their debts.

“I don’t think the government will bail out property developers directly, but they may continue to appeal to banks and financial institutions. [state-owned enterprises] It’s to help some troubled developers,” said Tommy Wu, senior China economist at Commerzbank.

He expects Beijing to gradually resolve its real estate problems and reduce the industry’s role in the economy. Real estate and related sectors account for about a quarter of China’s gross domestic product.

“New measures in the coming weeks and months will most likely continue to focus on helping home completion and stimulating home sales,” Wu said.

S&P Global Ratings in September estimated the property market need at 700 billion yuan ($98.59 billion) to 800 billion yuan.

A similarly sized central government fund has yet to be announced.

That is despite multiple reports citing sources about the proposed funding. Some investment analysts expect such funds, especially those large enough to boost confidence.

Many developers are already struggling financially.

Total disclosed liabilities Evergrande, size When Shimao More than 2.6 trillion yuan as of mid-2021, the financial troubles of the three developers have since worsened. They are a small part of the industry.

At that scale, even if the central government spent hundreds of billions of yuan, it would have little effect, said Qin Gang, executive director of China’s property research agency ICR.

That doesn’t take into account that the government is far more cash-strapped than it was three years ago, he said, pointing to lower revenues from land sales and taxes and higher spending on Covid measures. .

China’s central government has collected about 9.15 trillion yuan ($1.26 trillion) in total revenues in 2021, according to the Ministry of Finance.

Its income in the first eight months of this year was 6.36 trillion yuan, down nearly 10% from a year ago, not taking into account tax credits.

Public awareness is also important, said Qin, noting that people can get angry when the government supports indebted developers.

He added that the issue of handing over completed apartments is very complex and requires regional coordination to resolve.

In recent months, the central government has slashed mortgage rates and made local governments responsible for solving property problems. Some cities have also eased restrictions on buying homes this year.

The Ministry of Housing, Urban and Rural Development stressed to reporters last month that the central government’s measures — special loans to expedite the completion of housing — are aimed at helping cities in need of housing. No amount was given.

The explosive growth of China’s real estate industry over the past two decades has cast heavyweights who were not afraid to flaunt their wealth. Beijing has emphasized narrowing the wealth gap in recent years.

Much of the real estate sector’s rapid growth has been fueled by developer taking on debt. Home prices skyrocketed, creating bubble concerns and forcing families into debt to buy homes.

China’s property decline is now in its 10th quarter, according to an analysis of Barclays’ quarterly property investment data, with analysts reporting a record-long decline of more than two years in an October 13 report. said to be a period.

The downturn in China’s property market so far has averaged four to five quarters, according to the report.

A prolonged decline means Chinese people are less willing to buy homes and will benefit from higher prices, analysts said. This means that developer sales are declining.

Barclays analysts noted measures such as the issuance of state-backed guaranteed bonds, saying, “While we do not expect to bail out troubled developers, we are ‘market oriented’ to support quality developers.” approach is likely to continue.”

In an example of what we expect to see the increasing involvement of state-owned enterprises, Evergrande’s Shenzhen unit announced in late September that it would work with state-owned enterprises to guarantee home deliveries.

Otherwise, the central government has focused on non-real estate issues.

Many initially expected Beijing to revive central bank lending tools this fall to help developers complete housing construction, but it turns out it was for infrastructure. It turns out, Caixin reported earlier this month, citing a source familiar with the matter.

The People’s Bank of China did not respond to CNBC’s request for comment.

“Stronger support helps, but [real estate]The biggest challenge to restore confidence now is the still weak economy and the drag on consumer and business activity due to the zero-coronavirus policy,” said Commerzbank’s Wu.