Can Beijing really prevent the collapse of its real estate market?

In a global context marked by economic uncertainties, China faces unprecedented challenges to maintain its growth. Indeed, for several months, the Asian giant, the world's second largest economy, has been trying to break the deadlock, in particular by reviving a real estate sector in deep crisis. The Chinese government has just announced a new series of ambitious measures to stimulate its economy, with particular attention paid to the real estate market. These initiatives are crucial for China, but also for the global economy, given the weight of the Middle Kingdom on trade and financial stability.

A recovery focused on the real estate sector

China has unveiled new measures to support a flagging real estate sector, hoping to boost a flagging economy. During a press conference in Beijing, Housing Minister Ni Hong announced the expansion of credit for white-listed real estate projects to 4 trillion yuan by the end of 2024, nearly the double the previous envelope. This “white list” mechanism allows municipalities to recommend priority real estate projects to banks for financing. Such initiatives aim to prevent projects from remaining unfinished, a recurring problem since the crisis of sector giants like Evergrande.

In addition to this massive funding, Beijing has promised the renovation of a million dilapidated homes located in urban villages. The government believes that these renovations are essential to improve living conditions and strengthen infrastructure security. Indeed, “urban villages present many security risks and poor living conditions. People are eager to do renovations,” explain Neither Hong during the announcement. Support for the real estate market, one of the pillars of Chinese growth for two decades, is now essential to stop the spiral of price depreciation and restore investor confidence.

Measures welcomed, but skepticism persists

If government announcements have already led to renewed interest in financial markets, notably a 20% increase in Chinese stock markets at the end of September, the new measures unveiled this week have not generated the same enthusiasm. “The further we got into the press conference, the more we saw that the markets were not really excited,” said Stephen Innes of SPI Asset Management. Thus, investors seem to be waiting for more than announcements to be convinced that the Chinese real estate sector can stabilize in the long term.

“The disorder that reigns in China in the real estate sector cannot be resolved with a few speeches and shaky measures,” added Innes, which reflects a certain caution on the real effectiveness of these new initiatives.

Beyond targeted interventions on housing, the Chinese government has also presented a comprehensive economic recovery plan, which includes interest rate cuts for property loans and relaxations on the purchase of property in large metropolises. However, these actions, although positive, must be measured against the extent of the structural difficulties experienced by the real estate sector. Investors emphasize that the situation remains fragile, and that the impact of these measures could prove limited if consumer confidence does not return quickly. Beijing, which is targeting growth of 5% for 2024, faces many challenges to achieve this goal.

If the new measures demonstrate the desire of the Chinese authorities to revive their economy, they also underline the complexity of the situation. The real estate crisis remains a major obstacle to achieving the growth objectives set by Beijing, and the markets do not seem convinced by current solutions. Therefore, it will be necessary to closely monitor the evolution of Chinese growth figures, which should give clues to the effectiveness of the reforms underway.