By Andrei Skvarsky.
A current Chinese government policy to stimulate real estate sales as a way to clear the country’s stocks of unused properties is likely to benefit developers and hence give a boost to construction, according to a subsidiary of the Euromoney Institutional Investor publishing group.
This policy can also provide local governments with money they can put into infrastructure projects, Hong Kong-headquartered intelligence firm CEIC Data said in a newsletter.
Developers might use sales revenues the policy would enable them to raise to buy more land and collateralise it for loans that they could use to build more properties, CEIC said.
Real estate is the most effective tool to boost gross domestic product, CEIC argued. Real estate destocking is one of the government’s 2016 priorities, it said.
However, property destocking is not an easy task. It takes an average of 21 months to sell newly completed residential buildings, and meanwhile new buildings are being put up and enlarging China’s stocks of real estate.
It would be impossible to clear the excess stocks within the next few years, CEIC said.
Any Chinese household that owns real estate sees the property as its chief asset but properties are also a major source of liabilities, the firm said. In 2015, housing mortgages made up about 48% of total household loans, it said.