China Unveils A Housing Market Bailout: Here’s What’s In It, And Why It Is Still Not Enough
More than four years ago, when China first launched its latest “deleveraging” campaign targeted at bursting the country’s housing bubble in a controlled fashion, which coincidentally was the single largest asset for China’s massive middle class, we – and many others – said that this experiment was doomed and that all China is doing is delaying the inevitable bailout of the property sector with another metric asston of new debt. Well, as the news overnight confirmed, we were right… but not before China saw all of its largest domestic real estate developers collapse, push its housing market into a deflationary tailspin from which the country has not yet recovered, and suffered five years where its economy stagnated and pushed social tension to the edge.
So what happened?
On Friday, Chinese policymakers unveiled a fresh batch of easing measures for the housing market, including:
- clear top-down guidance for local governments to purchase existing housing inventory for public housing provision,
- an RMB300bn relending quota for destocking the housing market,
- reductions in downpayment ratios and mortgage rates,
- more policy support to secure the delivery of pre-sold homes.
Needless to say, local government (which is really just an extension of the central government) purchases of existing housing inventory is for lack of a better word, nationalization, and as Goldman writes in its post-mortem (pdf available to pro subs), if implemented at scale, can help stabilize home sales, prices and completions, but the boost to new starts and land purchase would be limited.
And while lower downpayment ratios and mortgage rates may boost home sales to some degree, the magnitude of downpayment ratio reductions was relatively small this time, and the pace of cuts to effective mortgage rates could be somewhat constrained by bank net interest margins.
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