China unveils unprecedented £34bn bailout to tackle real estate crisis
China has never done anything like this before. Xi Jinping has seriously tackled the real estate crisis and introduced a powerful bailout package. Beijing is eliminating the lower limit on mortgage rates and reducing down payments, and the central bank is preparing £34 billion for the purchase of empty apartments.
"China is trying to end the real estate market crisis with a broad bailout package," writes "Bloomberg" on Friday. Among the proposals is the elimination of the lower limit on mortgage interest rates, lowering the required down payment, and the People's Bank of China is preparing £34 billion to purchase unsold homes that will later serve as social housing.
China launches a credit bomb. Such a bailout package has never been seen before
As the newspaper notes, shares of Chinese developers soared by 10%, but analysts wonder whether the package will actually be effective. "Many people are waiting for real estate prices in China to drop," it claims.
"It is somewhat similar to rescuing financial institutions during the Great Financial Crisis," said Zhu Ning, a finance professor at the Shanghai Advanced Institute of Finance, during an interview with Bloomberg TV.
Down Payment
China's Vice Premier He Lifeng emphasized during Friday's meeting that "the real estate sector is strongly connected to economic development". He also stressed the need to further implement the so-called "three major projects" of the Middle Kingdom: social housing, city renovation, and public infrastructure.
On Friday, the central bank reduced the minimum down payment to a record low of 15%. Meanwhile, buyers purchasing a second home now have to put down 25%, with both changes representing a decrease of 5 percentage points.
After eliminating the nationwide minimum, each city will still have to make its own decisions regarding mortgage interest rates. Local authorities can decide whether to maintain the minimum interest rate levels for mortgages and at what level, the portal reports.
Housing crisis in China
As Bloomberg writes, more than three years after China introduced strict limits on developer debt, real estate companies, including state-supported China Vanke Co., are on the brink of bankruptcy.
Altogether, they failed to repay £102 billion in debt. This threatens the entire society, as protests among Chinese citizens intensify, and unsold housing inventories remain at their highest level in eight years. With halted construction work and developer insolvency, about 5 million people face the risk of unemployment or reduced income. Images of empty buildings and unfinished public works have become global symbols of dissatisfaction with Xi's economic management - explains the portal.
