China said it is raising its financial support program for the real estate projects on the “whitelist.” The move in China should stabilize its struggling property market, weighed down by debt and buyer confidence. Ministry of Housing and Urban-Rural Development (MOHURD) Chairman Ni Hong confirmed financing for those projects would rise to 4 trillion yuan ($562 billion).
The “whitelist” policy, launched in the early part of 2019, reportedly works by identifying projects and then releasing them for central financial support. Since September, more than 5,000 have been approved, and banks have released about 1.4 trillion yuan. The program focuses on the lead company running developments, which are financially distressed, and aids them in getting sufficient funding to complete their projects so as to gain confidence in the market.
The central government has instructed local authorities to liaise closely with the banks and financial institutions and ensure that the approved projects meet all the criteria for financing. This liaison is part of a larger scheme of actions, in view of a slow-down in the real estate sector that has already caused ripples in some of the biggest players.
For instance, the effects have already been felt by Evergrande and Country Garden. Since the Chinese government will target only those projects that are financially viable and those with balanced balance sheets, the latter can expect fewer defaults and even trigger the prospect of market recovery.
Though the expansion may display a positive scope for restoring the market, experts believe that the root problems in the market cannot be cured by this initiative. As Liu Shui, with the China Index Academy, comments, the new whitelist program may at least temper immediate distress financing problems, but the entire problem of declining new home demand remains very much in place. Banks remain too cautious to commit themselves fully to lending. Projects get subjected to long credit checks before any disbursement takes place. In many cases, approved projects are held up still for final clearance from financial institutions.
China also aims at stabilizing its real estate sector through the development of affordable housing and redevelopment of urban territories. Analysts see in this, direct financial support combined with policy-driven development a multi-pronged approach that will lead toward a more robust market. But how soon consumer confidence and market demand return will be determinant for how effective these measures are going to be.
With this increased financial burden, China has made a pivotal move toward consolidating its efforts in stabilizing the real estate sector even further. This whitelist scheme, thus extended, offers relief at hand; nonetheless, to achieve sustainable growth, it will have to address the long-term issues that surface in saturated markets and reluctance by consumers.
