China’s local governments offer lifeline for builders facing a squeeze in home sales as coronavirus spreads

Pearl Liu

China’s local governments are racing to rescue home builders as the coronavirus outbreak threatens to squeeze sales and liquidity in an industry that has become a powerful engine of growth for the economy.

The authorities in Wuxi in the eastern province of Jiangsu unveiled 17 measures on February 12 to help its developers cope with sliding slump. Hengyang, the second largest city in south-central Hunan province, followed two days with some tax waiver for homebuyers to help rejuvenate sales.

Since the epidemic broke out from Wuhan in central Hubei province, the housing market has come to an abrupt standstill. Authorities in more than 110 cities in 12 provinces have ordered developers to shut their sales offices to contain the outbreak, according to consulting firm China Real Estate Information Corp.

The reaction in Wuxi and Hengyang suggests the fallout has been too much to bear amid the worst health crisis in almost two decades. For example, China Evergrande, the third-largest listed developer, will slash prices by a quarter from February 18 for flats in all its 800-odd projects nationwide.

China’s home sales about to fall off a cliff as coronavirus forces shutdown in sales offices

“This could be a lifesaver for developers who may be struggling for cash flow,” said Huang Tao, a general manager at Centaline Property based in Guangzhou. “Property agents can hardly bring in the customers while sales centers are shut.”

Developers in Wuxi, which is located 800km from the epicentre in Wuhan, are now allowed to begin selling homes as soon as they have obtained 25 per cent of project financing, according to its announcement. Under normal rules, such sales can only kick off when 25 per cent of construction is completed.

The city is also offering a “grace period” for unpaid loans and unpaid land premium to developers whose businesses have been severely hit.

China Evergrande slashes prices of new flats by a quarter as coronavirus hurts developers

In Hengyang, 513km away from Wuhan, the local government is offering to waive up to 1 per cent of tax on home-sale deeds for buyers. It has also extended a 50,000 yuan allowance for home purchases to all university graduates, instead only for those from selective top-tier universities.

Other provincial cities like Shenzhen, Hangzhou, Tianjin, Xi’an and Nanjing have also rolled out some relief measures, including lowering the land premium and lengthening the time for those payments, according to their announcements.

It remains to be seen if more relief measures are forthcoming given the industry’s significant contribution to the economy. Housing and its related sectors account for about one-third of China’s GDP, according to government data, while home ownership makes up about 70 per cent of an average citizen’s wealth.

Moody’s Investors Service said that the coronavirus outbreak will dent China’s property sales, causing a slight decline this year after a 10.3 per cent gain in 2019.

“Developers are now struggling to break even,” said Huang of Centaline Property. “It is a good time now to roll out the favourable policies to help revive confidence in the sector.”

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