Insight: China’s government last Friday launched its biggest effort yet to revive the country’s ailing real estate market. The central bank is providing up to RMB 1 trillion (USD 138 billion) of funding to banks, state companies and local governments to buy up unsold homes, even as prices keep falling and developers are reducing new construction.
Impact: With the property sector generating a third of GDP, its fortunes are vital to the country’s economic recovery. And Beijing is pulling all the levers at its disposal, with this ‘historic’ support package coming on top of earlier measures, including a reduction in mortgage rates. Analysts remain concerned about the size of the problem: Goldman Sachs estimates unsold inventory may be as high as RMB 13.5 trillion. However, the government is aware that too much intervention could further depress prices for existing homes and force more developers into distress. This balanced package should help stabilize the market for now and lay a foundation for Beijing to provide more support as required.