China Unveils New Measures to Revitalize Property Sector and Boost Economic Growth

In response to a significant downturn in the property market, China has introduced a series of new measures aimed at revitalizing the sector and spurring economic growth. The People’s Bank of China (PBOC) announced these steps on Friday, amid concerns over the steep decline in housing prices and the broader economic implications.

Measures to Boost Property Market

China’s central bank has decided to lower the minimum down payment for mortgages and eliminate the floor on interest rates for first and second homes. This move comes as the latest data indicates a nearly 10 percent drop in housing prices since the beginning of the year.

The property market’s decline began after a government crackdown on excessive borrowing by developers several years ago. This crackdown led to a ripple effect across various industries, including home furnishing, appliances, and construction, ultimately slowing down growth in the world’s second-largest economy. Numerous developers have defaulted on their debts, leaving many high-rise apartment projects unfinished and abandoned.

Tailored Policies for Each City

Vice Premier He Lifeng emphasized the need for targeted policies to address the unique challenges of different cities. “We will solidly advance key tasks such as guaranteed housing delivery and absorption of existing commercial housing,” He stated during a top-level teleconference on property policies, as reported by the official Xinhua News Agency.

The government aims to entice more families to purchase homes through these new measures, building on previous efforts like interest rate cuts and government-backed financing, which had limited success. The reduction in minimum down payment rates is a significant part of this strategy. Effective Saturday, the interest rate for first-time housing provident fund loans for under five years will be cut by 0.25 percentage points to 2.35 percent, and for loans over five years, the rate will be reduced to 2.85 percent. The minimum down payment for first homes will be 15 percent of the purchase price, and 25 percent for second homes.

Addressing Insufficient Domestic Demand

Liu Aihua, a spokesperson for the National Bureau of Statistics, acknowledged the persistent issues of insufficient domestic demand and the high pressure on businesses. “The complexity, severity, and uncertainty of the current external environment are significantly increasing. There is insufficient effective domestic demand, high business pressure, and many risks and hidden dangers,” Liu explained. She stressed the need to strengthen the foundation for economic recovery.

The State Council, China’s Cabinet, held a news conference later on Friday, focusing on strategies to address the property sector’s challenges. One key approach involves local governments purchasing unsold apartments to be repurposed as affordable housing, a trial program that appears to be expanding into national policy.

Collaborative Efforts to Revitalize the Industry

The financial news outlet Caixin reported that a joint task force is being established by the housing ministry, the central bank, other government agencies, and state-owned banks to develop strategies to rejuvenate the property market. These collaborative efforts are critical as China aims to stabilize and grow its economy.

China’s economy grew at a rate of 5.3 percent in the first quarter of 2024, a robust figure but relatively slow for a developing economy. Signs of economic weakness have persisted, particularly in the property sector. The latest report from the National Bureau of Statistics revealed that while factory output rose by 6.7 percent in April compared to the previous year, housing starts fell by nearly 25 percent year-on-year, and sales measured by floor area were down 20 percent. Financing for property projects also dropped by 25 percent.

Stimulating Consumer Spending

In addition to measures aimed directly at the property market, officials are encouraging consumer spending through policies designed to incentivize households to sell old cars and appliances and purchase new ones. Retail sales saw a modest increase of 2.3 percent in April, reflecting the broader challenges of boosting domestic demand.

Conclusion: A Multi-Faceted Approach to Economic Stabilization

China’s latest measures to address its property crisis reflect a multi-faceted approach to economic stabilization. By reducing mortgage down payments and interest rates, and promoting targeted policies for different cities, the government aims to reignite the property market and support broader economic growth. Collaborative efforts among various government bodies and financial institutions are crucial to these initiatives, as China navigates the complexities of revitalizing its property sector and sustaining economic momentum.