China plans real estate fund worth up to $44 billion for struggling sector, source says

The Evergrande Center of China Evergrande Group is seen amid other buildings in Shanghai, China September 24, 2021. REUTERS/Aly Song

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  • Fund size will initially be set at 80 billion yuan – source
  • The news comes as regulators scramble to reassure investors
  • Fund alone won’t ‘solve all the problems’ – economist

BEIJING/HONG KONG, July 25 (Reuters) – China will launch a property fund to help property developers tackle a crippling debt crisis, aiming for a wartime budget of up to 300 billion yuan ($44 billion) in the aim of restoring confidence in the industry, according to a state bank official with direct knowledge of the matter.

The move would mark the state’s first major step in rescuing the beleaguered real estate sector since debt troubles became public knowledge last year.

The size of the fund would initially be set at 80 billion yuan with backing from the central bank, the People’s Bank of China (PBOC), the person, who declined to be identified due to the sensitivity of the currency, told Reuters. ‘affair.

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He said the state-owned China Construction Bank (601939.SS) will contribute 50 billion yuan to the 80 billion yuan fund, but the money will come from the PBOC loan facility. .

If the model works, other banks will follow with a goal of raising up to 200 billion to 300 billion yuan, he added.

A key pillar of the world’s second-largest economy, China’s property sector has faltered from crisis to crisis and weighed heavily on growth over the past year. A homebuyer revolt this month caused more headaches for authorities. Read more

Some analysts said a fund would only provide part of the solution.

“We don’t know the details of the fund yet. If only $80 billion isn’t enough to solve the problem,” said Larry Hu, chief China economist at Macquarie. “I think the fund would be part of a bigger package to solve the current debt and mortgage crisis because it wouldn’t solve all the problems on its own…we need a real estate recovery .”

Reuters sought comment from China Construction Bank, the PBOC and China’s cabinet, the State Council.

Global investors are obsessed with developments in China’s real estate market, which, along with related sectors such as construction, accounts for more than a quarter of the country’s gross domestic product (GDP).

The source said the fund will be used to finance purchases of unfinished house projects and complete their construction and then rent them out to individuals as part of the government’s drive to boost rental housing.

Such a move would underscore the importance the central government attaches to providing more affordable housing for young people at a time when some local governments have been reluctant to build rental housing because land sales are a major source of revenue.

The Henan government has backed Zhengzhou Real Estate, which set up one of the country’s first local bailout funds last week with state-owned Henan Asset Management as part of the mortgage boycott, plans to use 20 billion yuan to acquire 50,000 units and turn them into rental housing, according to a notice from Zhengzhou authorities this month seen by Reuters.

REAL ESTATE TITLE RALLY

Turmoil in China’s property market, from the debt crisis to the credit crunch and mortgage boycott, has undermined confidence in the sector and seen authorities scramble to prevent problems from spreading to the wider economy.

“If the (fund) can be realized in the near future, it will help prevent more developers from defaulting and also help improve market sentiment as well as developer sales,” said Raymond Cheng, head of the research on China at CGS-CIMB Securities.

The latest news propelled the Hang Seng Mainland Properties Index (.HSMPI) more than 5% early Monday, and it was up 3.5% by mid-afternoon. The CSI 300 real estate index (.CSI000952) rose almost 2.0%.

Financial information provider REDD first released details of the real estate fund on Monday.

The fund would support more than a dozen property developers, including the struggling China Evergrande Group (3333.HK), REDD reported, citing unidentified sources.

Regulators and local governments will select developers eligible for support from the fund, REDD said, adding that the fund could be used to purchase financial products issued by developers or finance acquisitions of their projects by public buyers.

Beijing is also considering a national policy of issuing special bonds for slum upgrading, according to the report.

($1 = 6.7553 Chinese yuan renminbi)

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Reporting by Beijing Newsroom and Clare Jim in Hong Kong; Additional reporting by Kevin Huang in Beijing; Editing by Anne Marie Roantree and Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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