Localities given more powers to stabilize realty

China's policymakers have vowed to adopt a city-specific approach for fine-tuning or slashing restrictive measures in home purchases, and stem the downturn as well as restore stability in the real estate market.

Officials and experts said this will better anchor market confidence and facilitate a broader economic recovery.

Since housing is an important source of asset-based income for Chinese residents, a recovery of the property market can translate into greater consumer confidence and capacity to spend, providing a much-needed boost to invigorate domestic demand, they added.

The Government Work Report, released during the annual meeting of the National People's Congress, the country's top legislature, made it clear that localities are allowed to make context-based policy adjustments aimed at reducing restrictive measures in the property sector, so as to tap into potential demand for first homes and better housing.

"A mortgage rate cut could be a critical component of the government's broader strategy to arrest the ongoing downturn in the real estate market and guide it toward a sustainable recovery," said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.

"Given the current high level of real mortgage interest rates after accounting for inflation factors, there is still ample scope for a significant downward adjustment in mortgage rates, whether for new loans or existing ones, over the course of this year," Wang said.

It was also stressed in the report that the government will direct efforts to leverage existing land resources, facilitate the purchase of commodity housing stock and expand the scope of the relending facility for government-subsidized housing.

The current substantial land inventory and the long time taken to clear the housing backlog are hindering the real estate market's ability to stabilize and rebound, said Yan Yuejin, deputy head of the Shanghai-based E-House China R&D Institute.

The government has announced plans to earmark 4.4 trillion yuan ($606.38 billion) in local government special-purpose bonds this year, a 500 billion yuan increase from 2024. It will channel these financial resources toward the acquisition of land parcels, the purchase of existing commercial housing inventory and infrastructure projects, among others.

"By directly addressing the inventory overhang through acquisitions, the authorities are removing a key source of downward pressure on home prices, which in turn will help to stabilize market expectations and pave the way for a broader recovery in the real estate sector," Yan said.

Moreover, policymakers will leverage the real estate financing coordination mechanisms to ensure timely delivery of housing projects and effectively prevent debt defaults by real estate companies, according to the report.

The government has deployed over 6 trillion yuan in loans under these mechanisms to support the delivery of more than 15 million units of housing that are either already completed or currently under construction, said Li Yunze, head of the National Financial Regulatory Administration, on Wednesday.

This year, the administration will further expand the pool of qualified projects that can secure loans under the mechanisms, helping to alleviate the liquidity challenges faced by developers and ensure timely delivery of pre-sold homes to buyers, Li added.

"The real estate sector is the most significant component of residents' asset portfolios in China. Stabilizing the housing market would allow for the release of the wealth effect, which in turn could provide a much-needed boost to consumer spending," Chen Changsheng, deputy director of the Research Office of the State Council, said at a news conference on Wednesday.

In the aftermath of the COVID-19 pandemic, a key factor behind sluggish consumer spending has been the slowdown in income growth. Among the main sources of household income, property-related income has seen the sharpest decline, said Shen Jianguang, chief economist at Chinese e-commerce platform JD.

These efforts are not only about shoring up the property sector itself, but also have broader implications for household wealth and consumer spending, which are crucial to the country's economic recovery, Shen added.