TAIPEI — The International Monetary Fund stated on Friday that China needed to take additional steps to address its real estate issues.
About a quarter of China’s GDP comes from the real estate sector, which has slowed the country’s economic expansion, particularly after Beijing began to crack down on developers’ heavy reliance on debt in 2020.
Over the past few months, Chinese authorities have begun to loosen limits on funding for the industry.
According to Thomas Helbling, deputy director of the IMF’s Asia Pacific Department, “Authorities’ recent policy initiatives are encouraging, but in our view, additional action will be needed to end the real estate crisis.”
In an interview with CNBC, he continued, “If you look at the initiatives, a lot of them address funding difficulties for the developers that are still in relatively good financial health, so that would assist. “However, the issue of property developers who are having serious financial issues is still unresolved. The problem of the substantial supply of unfinished homes, in general, has not yet been addressed.
In China, apartments are sometimes sold to homeowners before they are finished. Construction was hampered so significantly by health issues and money problems last summer that several homebuyers protested by stopping their mortgage payments.
Following that, Chinese authorities underlined the need to assist developers in completing those pre-sold apartments. However, according to government data, the amount of residential floor space sold in China decreased by about 27% last year, while real estate investment decreased by 10%.
Helbling stated, “I believe that it would be beneficial to indicate to a route out and… how the restructuring may be done and who will suffer losses if there are any.” In order to handle the enormous number of unfinished flats, he also advocated for further steps.
If this doesn’t happen, the sector will continue to be risky, confine people that are overexposed to the real estate market, and tie up cash and savings, which will hinder the overall economic recovery.
Helbling opted not to specify a deadline by which authorities needed to take action before things grew considerably worse.
“It’s best to address downside risks as soon as possible.”
China claims there is no crisis.
Following yearly consultations with Chinese authorities that ended in November, the IMF released its most recent report on China, which included the organization’s findings.
According to a statement in the IMF report from Zhengxin Zhang, executive director for the People’s Republic of China, and Xuefei Bai, senior counselor to the executive director, dated Jan. 12, the authorities disagreed with the IMF’s real estate estimate.
The statement argued that the situation in the sector was “a normal progression of ‘deleveraging and destocking’ in the previous several years” and that the Chinese real estate market “is not in a ‘crisis’ condition.”
The central bank spokespeople claimed that the dangers were local, only affected a few specific companies, and had a little overall impact. The Chinese side expressed their intention to merge developers and ensure the delivery of finished residences in the future.
According to Wind Information, Chinese real estate developers Country Garden, Longfor, and R&F Properties have had their share prices virtually double or more over the previous 60 trading days, or around three months. However, starting in March 2022, trading in the stock of the former behemoths Evergrande, Shimao, and Sunac has been suspended.
An important part of investors in the bonds issued by Chinese developers has been impacted, according to IMF research.
According to the research, “as of November 2022, developers that have already defaulted or are likely to default—with average bond prices below 40% of the face value—represented 38% of the 2020 market share of firms with available bond pricing.”
“Local governments are feeling the burden as a result of the sector’s collapse. Their ability to fund operations has decreased as a result of declining land sale earnings, and at the same time, local government financing vehicles (LGFVs) have greatly boosted land purchases.
Due to stronger-than-anticipated growth in several important nations in the latter part of last year, easing inflationary pressures, and the lifting of China’s COVID limitations, the IMF increased its global growth projections for the year on Monday.
The updated global growth prediction of 2.9% is 0.2 percentage points higher than what was predicted in October. But compared to the 3.4% growth in 2022, it’s still a deceleration.
The IMF forecasts 5.2% growth for China this year, higher than the 3% rate in 2022.