China’s real estate market shows signs of recovery
In 2022, China’s real estate market experienced a severe crisis that affected the country’s financial system. Sales volumes of the top 100 major developers dropped by more than 40%. The cancellation of bank lending to developers and the withdrawal of many investors from the market exacerbated the situation. At the end of the year, the dynamics began to improve, and experts gave optimistic forecasts for 2023, which contributed to the Government policy.
The Chinese authorities have abandoned the hard restrictions on the real estate market and implemented programs to support developers. For example, the government revised the credit rules and made loans available on favorable terms for developers. Under the new requirements, banking institutions will no longer assess developers on their debt and capital size. In addition, government financial institutions have simplified the conditions for obtaining a loan for large developers.
In 2020, China introduced the “Three Red Lines” rule, controlling the debt ratio. However, 50% of large developers still needed to comply as their debt rose and sales fell. The result was a record price collapse in the new housing market in 2022, affecting 54 of the 70 medium and large cities. A wave of bankruptcies followed, and buyers refused to pay mortgages on frozen projects. The authorities allowed free-standing real estate transactions and relaxed COVID-19 policies to remedy the situation. However, for many developers, the easing came too late, and they faced a severe liquidity crisis, and debts grew to hundreds of billions of dollars.
According to official statistics, in January 2023, the new housing sector increased prices in 12 cities. In 100 cities, the dynamics of cost reduction slowed, indicating the effectiveness of market stimulus measures.
The government stresses that it will continue fully supporting the real estate sector. First of all, the recovery measures will be aimed at the markets of large cities and then begin to stabilize the other regions.
The change in government policy and its positive result improve the chances of investors who have lost money in real estate. According to experts, they can recover their money or part of it. However, it is too early to count on a profit because the market is still unstable. At the same time, analysts predict an increase in prices for new objects, although the population’s purchasing power remains relatively low. In addition, there is a risk that the authorities will again impose restrictions if the price growth is too intense.