China mulls 1 trillion yuan of new funding to boost housing market
CHINA plans to provide at least one trillion yuan (S$187 billion) of low-cost financing to the nation’s urban village renovation and affordable housing programmes, in its latest effort to shore up the struggling property market, said sources familiar with the matter. The People’s Bank of China (PBOC) will inject funds in phases through policy banks, with the money ultimately trickling down to households for home purchases, said the sources, who asked not to be identified discussing a private matter.
Officials are considering options including the so-called Pledged Supplemental Lending (PSL) and special loans, said the sources, adding that the government may take the first step as soon as this month. The plan, part of a new initiative by Vice-Premier He Lifeng, would mark a major step-up in authorities’ effort to put a floor under the biggest property downturn in decades, which has weighed on economic growth and consumer confidence.
Market concerns are mounting over the financial health of the nation’s largest developers after several of them have fallen into default. China’s outstanding PSL stood at 2.9 trillion yuan as at October. A net injection of one trillion yuan of such lending facility would vault it past the previous record in 2019. The final amount of the new funding is subject to change, said the sources. The PBOC did not immediately respond to a request for comment.
The onshore yuan rebounded on the report, paring all of the day’s declines, to 7.288 per US dollar.
The yield on the benchmark 10-year government bond rose 1.75 basis points to 2.6625 per cent, heading for the biggest increase in three weeks.
The FTSE A50 Index Futures rose as much as 0.5 per cent after market close on Tuesday (Nov 14).
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Dubbed by some as “helicopter money”, PSL allows the central bank to provide low-cost funds through policy and commercial lenders to the developers of the shanty town renovation projects.
Developers then use the money to buy land from local governments, which in turn give cash subsidies to households whose old homes were demolished so they can purchase newly-built or existing apartments, driving up demand.
“This is not to spur growth but rather deliver a more balanced development for the longer term,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. He expects the funding to drive private investment in the sectors and lead to over 10 trillion yuan in overall direct investment.
State-owned developers such as China Resources Land were among the biggest beneficiaries from the previous expansion of the affordable housing projects. The PSL programme, however, is a controversial tool. Created in 2014, it was used to turn around a property market downturn then, but was heavily criticised later for inflating the real estate bubble in lower-tier cities. The central bank largely stopped providing new PSL funds in 2019 as the shanty town project wrapped up. But it was relaunched briefly last year to help the policy banks – which are less profit-driven than state lenders – provide financing for infrastructure development.
The latest plan comes after Beijing announced an unconventional fiscal stimulus last month, including raising the budget deficit with the issuance of additional one trillion yuan of sovereign bonds. The world’s second-largest economy is still on a bumpy recovery path despite an improvement in the third quarter.
Official data to be released on Wednesday is expected to show that economic momentum faltered in October, even though headline numbers will likely look good relative to last year.
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