China has turned down an International Monetary Fund (IMF) recommendation aimed at ending the country's yearslong property market crisis, a move estimated to cost about $1 trillion. In a report on the , the IMF called for the central government to speed up "completion of unfinished, presold housing, which would help restore homebuyer confidence." The IMF recommended a comprehensive policy package, partially funded by the central government, to tackle the issue of unfinished presold projects.
This approach should be paired with the "timely resolution," or liquidation of insolvent developers, to ensure market stability, the document said. China's property market, which once accounted for one-fifth of the nation's economic activity, entered a in 2020 when the government introduced policies targeting speculation and excessive borrowing. Overleveraged real estate giants, including Evergrande and Country Garden, plunged into insolvency.
Evergrande was ordered earlier this year to liquidate, while Country Garden faces a similar fate unless it can finalize a debt-restructuring plan by January. "I think how China is resolving this crisis on a city-by-city basis speaks to the government's approach," Peter Sattler, a senior lecturer in economics at China's Duke Kunshan University, told . However, he noted that Shanghai, a first-tier city with higher real estate prices and buoyed by exports, is far from the norm.
"In the interior, I think it's proceeding much slower," he said. Among the IMF's , the organization emphasized the need for Beijing to adopt policies that provide "one-off" support for indebted developers. This assistance would enable developers to finish apartments and protect homebuyers and would total nearly $1 trillion, or 5.
5 percent of China's gross domestic product, over four years. The plan acknowledged the daunting scope of projects across the country. The IMF also recognized that this effort would likely require raising the primary deficit for 2024 and beyond.
The primary deficit is the difference between the fiscal deficit of a given year and the interest payments on government debts from the previous year. "We believe that we should continue to apply market-based and rule-of-law principles in completing and delivering these units," said Zhang Zhengxin, the IMF's Beijing-appointed executive director for China, according to . Zhang also said it would be "inappropriate" for the central government to inject funds directly, arguing it would set a poor example and "lead to expectation of future government bailout and therefore moral hazards.
" reached out by email to the Chinese Foreign Ministry for comment. The housing crisis has left millions of buyers stuck with unfinished apartments, as about l in is tied up in property. In response, the central government introduced $55.
2 billion in loans in 2023 to assist developers in finishing some of these projects. As of July, just 34 percent of these homes had been delivered, news outlet Yicai Global reported last month. Despite efforts to support the market, new home prices slipped by 0.
67 percent from June to May, marking the largest drop since October 2014, according to China's statistics bureau. This decline occurred even after a suite of rescue measures introduced by the central government in May. These included lowering down payments for prospective homeowners and dropping a national minimum mortgage rate.
In addition, $42 billion was earmarked to help stricken developers offload unsold properties to state-backed companies for conversion into low-cost housing. Some municipal governments have had relatively more success. In April alone, property developers in Shanghai sold $3.
3 billion worth of luxury homes, a dramatic 156 percent increase year-over-year, according to the China Real Estate Information Corp., Bloomberg reported..
