2015-07-02

Cities Starting To Worry, Need Land Sales to Repay Debt

Chinese local governments must repay 1.86 trillion in debt this year and much of it is backed by land finance. Even if cities can swap new bonds for old debts, they can't reduce debt levels until the real estate market turns around.

Xian, Lanzhou, Qinghai and Henan province are among the local governments trying to rescue the housing market under heavy pressure to repay debt. Many governments backed debt with land finance, but with the housing market in the doldrums, they face an inability to pay. According to Centaline, land revenue is down 35.5% this year.

Buyers who tap Xian's public housing fund only need to make a 20% down payment and the whole household will get residency if they buy a 90 sqm or larger apartment. They will also have a full year of social insurance paid by the government. The upper loan limit from the public housing fund was raised to 750,000 yuan and immediate dependents can also use the funds. Industry insiders say the bailout exceeds expectations.

Xian's bailout is moderate compared to Lanzhou. Lanzhou also cut down payments to 20% for public housing fund loans, and workers only need pay in for 6 months to be eligible to borrow. Deed tax is cut to 1%, and for homes larger than 144 sqm, taxes are cut 50%. There are no restrictions on noin-residents, who can now buy as many homes as they want.

Cities in the Middle, West Northeast are under pressure from weak land sales.
"In order to stimulate the real estate market, increase the ability to repay local debt, local governments do not rule out the possibility of continued bailout moves." Zhou Zhifeng told reporters in Shenzhen, led by first-tier cities to pick up the property market is the case, a lot of fourth-tier cities housing prices did not stabilize and even still falling.

To ease the pressure on local debt in March this year the Ministry of Finance issued a one trillion yuan of local government debt stock of replacement debt limit; the end of May issued a second batch of 1 trillion yuan limit.

However, the local debt exchange is still "temporary solution." Xie Chen said, for many cities, if always replacing old debt with new debt, annual interest is a huge amount of spending. "Fundamentally speaking, only by changing the local real estate market trend can cities then gradually solve the local government debt repayment problem."
iFeng: 1.86万亿地方债压顶 多地现“大尺度”救市

Henan rescue. iFeng:河南出台保持楼市健康发展的住房消费“新五条”

Sohu: 多环节刺激楼市 城市间分化愈加明显

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