Thousands of middle-class Chinese have been stuck between a rock and a hard place after making down payments for properties that cash-strapped developers struggle to complete as they took more down payments to start new projects, thus creating a Ponzi-like scheme.
Currently, news of China preparing to issue 200 billion yuan ($29 billion) of special loans to help struggling developers finish their projects has been reported by Caixin.
China’s beleaguered property sector will get a much-needed boost from Beijing’s largest financial commitment to date in an effort to contain the property crisis that led to housing prices and real estate sales dropping in tandem.
Furthermore, the China Development Bank and Agricultural Development Bank of China will be channeled through which these loans will pass through, with an explicit purpose to be used for homes that have already been sold but are not yet finished.
In short, the dragged-out property downturn represented a significant strain on the growth of the Chinese economy, with the pace of GDP gains in Q2 2022 being the slowest since the Covid outbreak in Wuhan.
Meanwhile, in a note to clients, Jizhou Dong and Stella Guo, analysts at Nomura Holdings Inc., expressed their positive sentiment toward the government’s special loans.
“We view the central government’s introduction of bailout funding as the first meaningfully positive development in the past five to six weeks.”
Only a few weeks ago, China unveiled a multi-pronged approach to help the real estate sector; however, the youth unemployment and liquidity crunch are weighing heavily on its growth prospect, with predictions that growth in 2022 will be below 5%.
Furthermore, authorities tried various measures to spur the real estate sector by lowering down payments and supporting families with multiple children to buy more properties.
Finally, China’s insistence on Covid zero policy and more lockdowns, coupled with global inflationary pressures, have banks weary of more loans. Despite the actions taken by the government, the present decline in the value of real estate, which is the first one in over 10 years, is expected to continue in the near future.
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