New policy measures to drive growth of the Chinese construction market
The construction market has been severely affected ever since Beijing announced the crackdown in 2020. The crackdown was aimed to reduce developers’ leverage and housing units more affordable for Chinese consumers. Furthermore, the government also aimed at reducing the risk for the financial sector in the country. However, in an attempt to restore the market conditions and confidence in the real estate sector, the government has announced a series of measures in H2 2022, and the trend is projected to further continue in H1 2023.
- In January 2023, China announced a new credit policy to promote urban housing sales. The move will allow Chinese cities that have experienced a drop in home prices for three consecutive months to reduce mortgage rates, thereby making home purchases more affordable for Chinese citizens.
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Housing prices declined at a faster rate in many Chinese cities in December 2022. A consistent decline in home prices and the subsequent announcement of credit policy in January 2023, means that local authorities can lower the mortgage rate to 3-3.5% from the current 4%. Furthermore, the credit policy announcement also signals that the Chinese government will continue to provide support to the real estate and construction sector in 2023. ConsTrack360 expects Beijing to use more policy tools to offer support to the recovery of the property sector over the next 12 months.
- In January 2023, the Ministry of Housing and Urban-Rural Development announced that the authorities are committed to improving housing construction standards and pushing for the completion of stalled apartment buildings in China.
- In 2023, ConsTrack360 also expects the Chinese government to relax restrictions on developer borrowing, by rolling back the three red lines policy it announced in 2020, which resulted in a severe meltdown of the Chinese real estate sector.
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The government, in 2023, might allow some of the property developers to add more leverage by easing borrowing caps. Furthermore, the Chinese government might also push back the grace period, set by the three red lines policy, for meeting the debt targets. This ease, along with a series of measures announced in Q4 2022 can drive a dramatic turnaround in the Chinese construction industry from the short to medium-term perspective.
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Some of the recent measures announced by the Chinese government include a pledge of US$29 billion in special loans, thereby enabling property developers to finish the stalled construction projects. Furthermore, in November 2022, the government also unveiled a 16-point plan that addresses various issues ranging from liquidity to loosening down-payment requirements for homebuyers. In October 2022, many Chinese cities offered coupons to homebuyers to drive the recovery of the property market in the country.
- Jiangxi Province, for instance, offered a coupon worth US$5,500 to people who purchase a new home having a floor space of more than 90 square meters in the Honggutan district. The coupon initiative was launched to drive the demand for apartments and consumption in related sectors, such as interior home decoration and home appliances.
Authorities in China have indicated further support for the severely affected real estate market, and these policy announcements are projected to have a significant impact on the growth recovery of the construction market in China from the short to medium-term perspective.
