Photo: VCG/VCG/TASS
The Chinese authorities have allocated record state support for the construction market — 300 billion yuan (more than $41 billion). The money will be distributed through the People’s Bank of China, and state-owned enterprises will receive it in the form of loans. They will buy from developers unsold real estate (apartments and land plots) since the covid lockdown. And then it can be used as social or affordable housing.
The Chinese government, led by Li Qiang, has already announced that it will increase the number of social housing. By the end of the current five-year plan, the state subsidizes the rental of 6.5 million apartments in 40 cities.
The Chinese authorities have also released a whole list of measures to support housing construction. This includes the abolition of minimum mortgage rates and a reduction in the initial contributions of home buyers. It is in great contrast to the fact that in At the same time, Russia is canceling state support for preferential mortgages, which were mainly used by poor citizens.
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But in China, all injections into the construction market will help revive demographics (many young families from villages will receive long-awaited and cheap housing in cities), and at the same time restart the Chinese economy. After all, the construction market has been providing economic growth and household welfare in China for decades.
Support for the construction industry is already forcing Western analysts to revise forecasts for Chinese GDP growth. Although China’s economy should grow by at least 4.9% this year anyway (compare: the world economy will grow by 3%, the American economy by 2.2%, the British and French by 0.7%, and the German by only 0.2%).
Developers are waiting for the Ministry of Construction to order
The Chinese real estate market resembles the Russian one, in that it depends on the decisions of the state. For example, from the rate of a preferential mortgage or a ban on the construction of micro-apartments. The market reacts sensitively to every decision of the Russian Ministry of Construction. But there is no similarity in price regulation for the general population.
In China, the share prices of the largest developers also began to rise after the People’s Bank announced the allocation of 300 billion yuan.
To make it clear how much the Chinese market depends on the decisions of the state: after the authorities of only two cities, Hangzhou and In Xi’an, restrictions on apartment sales were lifted, shares of the Chinese construction company Shimao soared almost twice (by as much as 93%), shares of Aoyuan Group — by 28%, and CIFI Holdings — by 11%.
The Hang Seng real estate index in mainland China, calculated based on the indicators of the 10 largest real estate developers, jumped by 4.2%.
Hangzhou and Xi’an, of course, are not ordinary cities, but one of the largest in China — the population of each exceeds 12 million people. And now more and more Chinese cities are loosening restrictions on home purchases that have been in place for almost a decade.
Already, about 50 Chinese cities have relaxed restrictions on home purchases, and in 22 of them all restrictions have been lifted, according to data compiled by the Zhuge Real Estate Research Center. Currently, restrictions apply only in some areas of such megacities as Beijing, Shanghai, Guangzhou and Shenzhen.
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Mortgages in China are already half the price of the Russian one
The Chinese authorities imposed strict restrictions on the real estate market during the pandemic to protect it from the impact of the crisis. For example, in the largest megacities (including the capital Beijing), it was extremely difficult, if at all possible, to buy housing for nonresident residents, especially single ones. In Shanghai, for example, nonresidents could purchase housing only on condition that they paid the city tax for at least 5 years. Even families found it difficult to purchase additional residential real estate.
Now the Chinese authorities are using more and more financial levers to develop the real estate sector, which accounts for about a third of the country’s economy.
There are currently between 60 and 80 million unsold apartments in Chinese cities. In Shanghai alone, according to estimates by China Real Estate Information, 8 million “squares” of housing remain unsold in new buildings. And now, according to the government’s decision, developers will be able to transfer this housing to the social fund thanks to the state.
At the same time, mortgage rates are only decreasing in China: now they have dropped to a historically low level of 3.7%. At the same time, the buyer of a new apartment must immediately pay only 15% of the cost, and the buyer on the secondary market — 25%.
It can be compared with how much mortgagees pay today in In Russia: even a preferential mortgage is not lower than 8%. Simply put, it is twice as profitable to buy a house in China — despite the crisis.
It is not surprising that such a comparison is still in In Russia, the cost of real estate is growing, setting records that are completely unsuitable for the pocket of citizens, in China apartments will fall in price by 6% this year. Perhaps it is worth getting apartments not in greedy Sochi, but in prudent Beijing.
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