I'm Robert Lawrence Kuhn and here's what I'm watching: China's real estate sector, which has been battered by huge debt, weak demand and falling prices.The country's two largest real-estate behemoths, Evergrande and Country Gardens, are deeply troubled — Evergrande having declared bankruptcy and Country Gardens on the brink of default.

It is hard to overstate the importance of real estate in China's economy. Real estate accounts for about 30 percent of China's GDP (up from about 10 percent in 2000); it is the primary collateral securing loans, and land sales are a major source of revenue for local governments. Moreover, real estate now accounts for almost two-thirds of China's household wealth.

It is no state secret that China's growth has been excessively reliant on infrastructure investments, which are diminishingly productive, and real-estate, which is hyper-leveraged and vulnerable. According to the Wall Street Journal, in the 1990s, it took China about 3 dollars of investment to produce 1 dollar of GDP growth; it now takes about 9 dollars — a reduction in productivity that cannot be sustained.
 

Leadership certainly recognizes the critical need to stabilize the real estate market — without providing blanket guarantees that would distort markets. They advocate making good use of the "policy toolbox" to better meet residents' housing needs and to promote the "healthy development" of the real estate sector. Measures include: increasing affordable housing, transforming urban villages, constructing "both leisure and emergency" public infrastructure, and revitalizing various types of idle properties.

In a new policy, borrowers with existing personal housing loans for first homes can apply to the lending financial institution for a replacement loan with lower interest. In addition, for 2024 and 2025, taxpayers who sell their own homes and re-enter the market within one year after the current home is sold will be given a tax refund on the personal income tax paid on the sale of their current home.

Shenzhen sought to bolster its housing market by rolling back strict limits on home purchases that had been set to curb speculation. The megacity also relaxed homebuying eligibility criteria, affecting some non-residents and divorcees. Other first-tier cities, including Beijing, Shanghai, and Guangzhou, and provincial capitals, such as Haikou, Wuhan and Xi'an, now grants to first-time buyers the first-home mortgage treatment regardless if they've owned homes previously. Jilin Province has new incentives to encourage farmers to buy homes in towns and cities.

Will all these measures to boost property purchases be sustained or short-lived? The government will continue, as is its method, to monitor and assess, correcting course with new policies as needed. While policies focus on improving people's lives, including constructing affordable housing and public services, the big vision is to establish a new development model of the real estate industry.

I'm keeping watch. I'm Robert Lawrence Kuhn.

Script: Robert Lawrence Kuhn

Editors: Yang Yutong, Hao Xinxin

Designer: Qi Haiming

Producer: Wang Ying

Supervisors: Xiao Jian, Adam Zhu

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