China Steps Up 'Real Estate Revival' with Additional 340 Trillion Won Loans to Cash-Strapped Companies

Renovation of 1 Million Units in Seongjungchon and Dilapidated Housing
Market Says "Almost No Demand Stimulation Policies"

China has now taken steps to revive the real estate market, which is considered a core factor in the economic downturn. It plans to increase the supply of 'whitelist' loans to ease funding difficulties by approximately 339 trillion won by the end of the year and to renovate 1 million housing units.

Ni Hong, Minister of China's Ministry of Housing and Urban-Rural Development, held a press conference with domestic and foreign media at the State Council Information Office on the 17th and announced that the credit scale of the housing development 'whitelist' project will be expanded to 4 trillion yuan (approximately 766.64 trillion won) by the end of the year.

Ni Hong, Minister of Housing and Urban-Rural Development of China [Image source=Reuters Yonhap News]

Minister Ni stated, "The urban real estate financing cooperation mechanism should include all eligible real estate projects in the whitelist to meet reasonable funding demands."

The whitelist is a measure by the Chinese government to support liquidity through commercial banks for high-quality state-owned and private real estate companies facing funding difficulties. It targets companies whose construction projects are underway and meet conditions such as suitable collateral. This loan aims to prevent further decline in the real estate market.

Xiao Yuanqi, Deputy Director of the National Financial Regulatory Administration, said, "As of the 16th, commercial banks nationwide have approved loans of 2.23 trillion yuan (approximately 427.42 trillion won) for real estate whitelist projects," adding, "It is expected that by the end of 2024, the approved loan amount for whitelist projects will exceed 4 trillion yuan, doubling the current figure." This means increasing the loan scale by more than 1.77 trillion yuan (approximately 339.26 trillion won) by the end of the year.

A renovation project for 1 million units of urban dilapidated areas (Chengzhongcun) and old housing will be carried out. According to surveys, there are 1.7 million Chengzhongcun in need of renovation across 35 major cities nationwide. Additionally, the number of old housing units requiring remodeling is estimated at 500,000.

Chinese authorities announced that to promote the recovery of the real estate market, along with the 'two increases' measures of the 1 million housing renovation project and expansion of whitelist loans, they will implement 'four cancellations' and 'four reductions' measures.

The 'four cancellations' mean that municipal governments will be fully granted regulatory autonomy to adjust various restrictions on home purchases. This includes lifting purchase restrictions, lifting sales restrictions, lifting price restrictions, and lifting both general and non-standard residential criteria.

The 'four reductions' include lowering the interest rate on housing provident fund loans by 0.25 percentage points as previously announced, reducing the down payment ratio for housing loans to unify the minimum down payment ratio for first and second homes at 15%. It also involves lowering existing loan interest rates and reducing tax burdens when selling existing homes and purchasing new ones.

Minister Ni said, "Since the announcement of related policies, the decline in key indicators such as real estate development investment and new commercial housing sales has continued to decrease since the end of September," adding, "The volume of second-hand housing transactions has steadily increased, showing positive changes in the market." He also noted that after three years of adjustment, the market is bottoming out and that the October indicators will show signs of recovery.

China set an economic growth target of around 5% this year, but red flags have been raised due to the real estate market slump, domestic demand, and investment contraction. The growth rate for the second quarter fell to 4.7%, and market forecasts suggest the third-quarter growth rate, to be announced on the 18th, will be only 4.4%. Therefore, China has taken steps to revive the real estate market, considered a core factor in the economic downturn.

However, the market evaluates that there was no decisive breakthrough. The China CSI300 Real Estate Index fell more than 5% at one point in the afternoon, giving back recent gains.

Jeff Zhang, a Morningstar research analyst, said, "It appears that few gradual policies to stimulate housing demand were announced at the press conference," adding, "The most important measure is the expansion of whitelist support. It is expected that developers facing difficulties will receive funds to complete housing, accelerating execution and helping to strengthen homebuyers' confidence."