China Attempts to End Property Crisis Rescue Package

Xi Jinping’s government announced its most forceful attempt yet to rescue the beleaguered Chinese property market, relaxing mortgage rules and urging local governments to buy unsold homes as authorities become increasingly concerned about the sector’s drag on economic growth.

The support package also includes lower down-payment requirements for homebuyers and 300 billion ($42 billion) of central bank funding to help government-backed firms buy excess inventory from developers. Those properties would then be converted into affordable housing.

While equity investors cheered the news — sending an index of developer shares up nearly 10% on Friday — it’s far from clear whether the plan will draw a line under the property crisis. The funding announced by China’s central bank is just a fraction of what some analysts say is needed to address the supply-demand mismatch in housing, and many potential buyers are waiting for prices to fall further before stepping in.

“This is a little bit similar to the bailing out of financial institutions going through the Great Financial Crisis,” Zhu Ning, a professor of finance with Shanghai Advanced Institute of Finance, said during an interview with Bloomberg TV. “But in the end unless the central government is stepping in and extends its own credit to the real estate market, it’s a little difficult or too premature for us to believe we’re out of the woods.”