China approves $44B bailout to finish incomplete developments

Move comes after homebuyers threatened to stop payments on incomplete projects

Chen Long with Plenum (LinkedIn, Illustration by The Real Deal)
Chen Long with Plenum (LinkedIn, Illustration by The Real Deal)

China is taking steps to bolster its property market, providing some comfort for investors.

The State Council passed a plan to establish a fund worth up to 300 billion yuan ($44 billion) to support multiple property groups, propelling gains for an index of mainland property stocks, the Financial Times reported. The rally mostly fizzled by the end of last week.

The central bank and China Construction Bank will invest 80 billion yuan in the fund to help distressed real estate companies finish stalled developments. The fund, which regulators approved last week, can be used to do that, buy developers’ bonds or issue loans.

The step comes as frustrated homebuyers across the country threaten to stop paying mortgages on incomplete properties. Government officials have begun to censor social media posts about the boycott and housing officials vowed to better monitor developers’ use of funds.

Shares of many of the property index’s biggest players, including China Evergrande Group, Shimao and Sunac, have been suspended due to the companies’ liquidity crisis. The struggles began last year, when Evergrande defaulted.

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Evergrande Chairman Xia Haijun and Chief Financial Officer Pan Darong were forced to resign last week amid an investigation into whether some of its deposits were used as security for others to borrow from banks.

Local governments across the country that have had to assume responsibility for some of Evergrande’s stalled developments reached out to state banks and asset management companies for money to help finish them, but the response hasn’t been strong. Financiers have been reluctant to invest in projects that likely won’t turn any sort of profit since they’ve already sold out.

“You have to pay construction companies to finish them but there’s no return,” Chen Long, founder of Beijing-based consultant Plenum, told the publication. “You’re throwing money away, basically.”

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— Victoria Pruitt