A source said that China plans to create a real estate fund worth up to $44 billion for the troubled sector

The Evergrande Center of China’s Evergrande Group appears amid other buildings in Shanghai, China, September 24, 2021. REUTERS/Ali Song

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  • The size of the fund will be initially set at 80 billion yuan
  • The news comes as regulators scramble to reassure investors
  • The Fund alone will not “solve all problems” – Economist

BEIJING/HONG KONG (Reuters) – China will launch a real estate fund to help property developers solve a 300 billion yuan ($44 billion) war-related bad debt crisis in a bid to restore confidence in the country, according to a government banking official with direct knowledge of the matter. .

The move represents the state’s first major step to rescue the beleaguered real estate sector since the debt problems were publicized last year.

The person, who asked not to be identified due to the sensitivity of the matter, told Reuters that the fund’s size would initially be set at 80 billion yuan through support from China’s central bank.

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He said the state-owned China Construction Bank (601939.SS) will contribute 50 billion yuan to the 80 billion yuan fund, but the money will come from the reconstruction facility of the People’s Bank of China.

If the model succeeds, he added, other banks will follow suit with the goal of raising as much as 200 to 300 billion yuan.

One of the mainstays of the world’s second largest economy, China’s real estate sector has been reeling from one crisis to the next, and has been a major drag on growth over the past year. A rebellion by homebuyers this month has caused more trouble for the authorities. Read more

Some analysts said the fund would only provide part of the solution.

“We don’t know the details of the fund yet. If only 80 billion isn’t enough to solve the problem,” said Larry Hu, Macquarie’s chief China economist. “I think the fund will be part of a larger package to solve the current debt and mortgage crisis, because it alone won’t solve all the problems…we need a real estate recovery.”

Reuters has reached out to China Construction Bank, People’s Bank of China and China’s State Council for comment.

Global investors are focusing on any twists and turns in China’s real estate market, which, along with related sectors such as construction, accounts for more than a quarter of the country’s gross domestic product.

The source said that the fund will be used to finance purchases of unfinished home projects and complete their construction, and then lease them to individuals as part of the government’s efforts to promote rental housing.

Such a move would underscore the importance the central government attaches to providing more affordable homes for young people at a time when some local governments have been reluctant to build rental housing because land sales are a major source of income.

Henan government-backed Zhengzhou Real Estate, which set up one of the country’s first local rescue funds last week with state-owned Henan Asset Management in the center of the mortgage province, plans to use 20 billion yuan to acquire 50,000 units and turn them into leasing. housing, according to a notice from Zhengzhou authorities this month seen by Reuters.

Real Estate Stock Rally

Turmoil in China’s property market, from a debt crisis to a credit tightening and a mortgage boycott, has shaken confidence in the sector and seen authorities scramble to avoid spreading problems in the broader economy.

“If (the fund) can be realized in the near future, it helps avoid more developers from defaulting and also helps improve market sentiment as well as developer sales,” said Raymond Cheng, head of China research at CGS-CIMB Securities.

The latest news pushed the mainland’s Hang Seng Properties Index (.HSMPI) more than 5% early Monday, and it rose 3.5% in the middle of the afternoon. The CSI 300 Real Estate Index (.CSI000952) is up 2.0%.

Financial information provider REDD first announced the details of the real estate fund on Monday.

REDD, citing unidentified sources, reported that the fund will support more than a dozen real estate developers, including the embattled China Evergrande Group (3333.HK).

REDD said regulators and local governments will select developers who are eligible to receive support from the fund, adding that the fund can be used to purchase financial products issued by developers or finance state acquisitions of buyers on their projects.

The report said Beijing is also studying a national policy to issue special bonds for the redevelopment of shantytowns.

(dollar = 6.7553 Chinese yuan)

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(Beijing newsroom report and Hong Kong’s Claire Jim); Additional reporting by Kevin Huang in Beijing. Editing by Anne Marie Rowntree and Shree Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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