On Friday, a spokesman for the IMF said that China still faces a very serious real estate crisis, and Beijing still has a lot of work to do to fix the underlying issues with the sector.
Accounting for one quarter of the entire Chinese economy, the cash-strapped Chinese real estate sector has been battling projects stalled by developers’ liquidity issues for a few years. That has hit confidence in the sector, and dragged down growth for the world’s second biggest economy.
Recent government actions designed to ease restrictions on financing for the sector were hailed by IMF economists, however they noted that there will need to be “additional action” to bring an end to the real estate crisis.
Thomas Helbling, deputy director in the IMF’s Asia Pacific Department, said to CNBC, “If you look at the measures, a lot of them address financing issues for the developers that are still in relatively good financial health, so that will help.”
However he went on to note that developers continue to face “severe” issues, adding, “the issue of the large stock of unfinished housing more broadly is not yet addressed.”
The housing market was also hard hit by the Covid-19 pandemic, with a sudden freeze in construction of projects that are traditionally pre-sold to consumers triggering major financial difficulties for developers.
As developers encountered liquidity issues, they began to halt projects, and customers who had already paid were left with no idea if they would ever receive the property they bought. Even worse, the properties were usually bought with mortgages the buyers were still left making monthly payments on, despite the fact the property they bought had not even been built. Some home buyers protested the situation by refusing to make their monthly payments, triggering concern at banks that they would be the next to experience liquidity issues.
Authorities eventually stepped in and emphasized the need to provide developers assistance to help them finish building the pre-sold properties. Despite the government action however, residential floorspace sales fell by almost 27% last year, as real estate investment fell almost 10%, according to official statistics.
Hebling noted that Beijing now has to come up with a restructuring plan, and decide who will ultimately bear the brunt of the losses which the sector has endured.
He added, “Otherwise, the sector will continue to slump and remain a risk and also constrain households that are overexposed to the property sector, and will have cash tied up and their savings tied up, which will be a handicap for the broader economic recovery.”
