China’s real estate crisis isn’t over yet, IMF says
China’s real estate market has slumped in the last two years after Beijing cracked down on developers’ high reliance on debt for growth.
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BEIJING — China needs to do more in order to fix its real estate problems, the International Monetary Fund said Friday.
The property market contributes to about a quarter of China’s GDP and has been a drag on growth, especially since Beijing cracked down on developers’ high reliance on debt in 2020.
Chinese authorities started to ease restrictions on financing for the sector over the last several months.
“Authorities’ recent policy measures are welcome, but in our view additional action will be needed in order to end the real estate crisis,” Thomas Helbling, deputy director in the IMF’s Asia Pacific Department, said in a briefing.
“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,” he added in an interview with CNBC. “But the problems of the property developers’ facing severe financial difficulties are not yet addressed. The issue of the large stock of unfinished housing more broadly is not yet addressed.”
Apartments in China are typically sold to homebuyers before completion. Covid and financial difficulties slowed construction so much that some homebuyers halted their mortgage payments last summer in protest.
Chinese authorities subsequently emphasized the need to help developers finish building those pre-sold apartments. Still, residential floor space sold in China dropped by nearly 27% last year, while real estate investment fell by 10%, according to official numbers.
“I think it would be helpful to point to a way out and … how the restructuring could be done and who will absorb losses if there are any losses,” Helbling said. He also called for additional measures to address the large stock of unfinished apartments.
“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,” he said.
Helbling declined to name a specific timeframe within which authorities needed to act before the situation got much worse.
“The sooner you address downside risks the better.”
China says it’s not a crisis
The IMF analysis was part of the organization’s latest report on China, following annual discussions with Chinese officials that ended in November.
The officials pushed back on the IMF’s real estate assessment, according to a statement in the IMF report by Zhengxin Zhang, executive director for People’s Republic of China, and Xuefei Bai, senior advisor to the executive director, dated Jan. 12.
China’s property market has generally operated smoothly and “is not in a ‘crisis’ situation,” the statement said, casting the sector’s situation as “a natural…
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