Economy: China tries to prevent cascading effect of the real estate sector’s bust
Virendra Pandit
New Delhi: Global crises like the Covid-19 pandemic, resultant recession, and general distrust of China worldwide, which have adversely affected the second-largest economy since 2020, have forced Beijing to lower the interest rate of home loans to prevent buyers from declaring bankruptcy.
With this aim, the People’s Bank of China (PBOC), the country’s central bank, has cut its mortgage rates as Beijing attempts to support the crisis-ridden property market.
China’s property crisis is estimated to have wiped out over a trillion US dollars off the value of the sector last year, the media reported on Monday.
Official data shows that home sales in China declined for 11 months in a row. That is the longest slump since China created a private property market in the late 1990s.
Due to a lack of demand and high-interest rates, the market had repelled home buyers since the pandemic broke out in early 2020. Because of a slump in demand and concern over finances, several Chinese developers halted building work on homes that had already been sold.
The sector’s crisis of partially built homes and higher EMIs had forced millions of home buyers to shift into incomplete homes and stop repayment of loans. It created a crisis in China.
The media reported that the PBOC has lowered the five-year loan prime rate (LPR) by 1.5 percentage points to 4.2 percent, which matches its biggest cut on the record.
The world’s second-largest economy faces a property crisis that brought several building projects to grind to a halt.
Because of the country’s strict zero-Covid policies, lockdowns also affected businesses and consumers.
On Monday, the PBOC’s step to a reduced five-year rate may bring down the cost of home mortgage repayments around the country.
The central bank also lowered the one-year loan prime rate, which is usually used to determine corporate loans, from 3.7 percent to 3.65 percent.
Iris Pang, Greater China chief economist at ING Bank, said the moves are part of a wider effort to shore up the real estate industry.
“Some local governments are lending to property developers to continue the construction of incomplete homes,” they quoted her as saying on Monday.
