China will launch a real estate fund to help developers resolve the debt crisis with funds of up to 300 billion yuan, or $44 billion USD. China wants to restore confidence in the property/developer industry after the absolute turmoil of the last year or so.
The size of the fund will be set initially at 80 billion Yuan through support from the central bank, the People’s Bank of China, and one unidentified individual. The state-owned China Construction Bank will contribute 50 billion Yuan into the fund, but the money will come from the People’s Bank of China relending facility. If the model works, other banks will follow suit with a target to raise up to 200 to 300 billion Yuan.
China’s property sector is a key pillar of their economy, but also a sector that has been going from one crisis to another. Even with the new fund, analysts fear that the fund will provide only part of the solution. “We don’t know details of the fund yet. If just 80 billion, it’s not enough to solve the problem,” said Larry Hu, chief China economist at Macquarie. “I believe the fund would be part of the bigger package to solve the current debt and mortgage crisis, because it alone would not solve all the problems… we need a real estate recovery,” he added.
Global investors are fixated on any changes in China’s property market, accounting for more than a quarter of the country’s GDP. The fund will be used to bankroll the purchase of unfinished home projects and complete their construction, and then rent them to individuals as part of the government's drive to boost rental housing. Such a move would underline the importance the central government attaches to providing more affordable homes 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 income. Henan-government backed Zhenghou Real Estate, which set up one of the first local bailout funds in the country last week with state-owned Henan Asset Management amid the mortgage boycott, plans to use 20 billion Yuan to acquire 50,000 units and turn them into rental housing.
The fund would support more than a dozen property developers, including China Evergrande Group. Regulators and local governments will select developers eligible for support from the fund, adding that the fund could be used to buy financial products issued by the developers or finance state buyers’ acquisitions of their projects.