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The source says China plans to set up a real estate fund worth up to $44 billion for the troubled sector

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Evergrande China Center Evergrande Group among other buildings in Shanghai, China, September 24, 2021. REUTERS/Aly Song

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  • The size of the fund will initially be set at 80 billion yuan – source
  • News comes as regulators try to reassure investors
  • Fund alone won’t solve ‘all problems’ – economist

BEIJING/HONG KONG, July 25 (Reuters) – China will set up a real estate fund to help developers resolve a devastating debt crisis, aiming to raise up to 300 billion yuan ($44 billion) in a bid to restore confidence in the industry, according to a state bank official with first-hand knowledge of the matter .

The move will be the first major move by the state to bail out a struggling real estate sector since debt problems were reported last year.

The size of the fund will initially be set at 80 billion yuan with support from the central bank, the People’s Bank of China (PBOC), a person who declined to be named due to the sensitivity of the matter told Reuters.

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He said the state-owned China Construction Bank (601939.SS) will contribute 50 billion yuan to the 80 billion yuan fund, but the money will come from a credit line from the PBOC.

He added that if the model works, other banks will follow suit with the goal of raising between 200 and 300 billion yuan.

China’s real estate sector, a key pillar of the world’s second largest economy, has been going through one crisis after another and has been a major drag on growth over the past year. The homebuyers’ riot this month has been another headache for the authorities. read more

Some analysts say the fund will provide only part of the solution.

“We do not yet know the details of the fund. If only 80 billion, that’s not enough to solve the problem,” said Larry Hu, Macquarie’s chief China economist. “I believe the fund will be part of a larger package to address the current debt and mortgage crisis because it will not solve all the problems on its own… we need a real estate recovery.”

Reuters has reached out to China Construction Bank, PBOC and China’s Cabinet, State Council for comment.

Global investors are fixated on any twists and turns in China’s real estate market, which, along with related industries such as construction, accounts for more than a quarter of the country’s gross domestic product (GDP).

The source said the fund will be used to finance the purchase of unfinished house projects and the completion of their construction, and then renting them out to private individuals as part of the government’s efforts to increase rental housing.

Such a move would highlight the importance the central government places on providing more affordable housing for young people at a time when some local governments are reluctant to build rental housing as land sales are a major source of income.

Henan provincial government-backed Zhengzhou Real Estate, which set up one of the country’s first local relief funds last week with state-owned Henan Asset Management amid the mortgage boycott, plans to use 20 billion yuan to buy and rent 50,000 apartments. housing, according to a notice from Zhengzhou authorities published this month by Reuters.

PROPERTY SHARE RALLY

The turmoil in China’s property market, from the debt crisis to credit tightening and the mortgage boycott, has eroded confidence in the sector and has seen authorities scramble to prevent problems from spilling over into the wider economy.

“If (the fund) can be realized in the near future, it will help avoid more developers from defaulting and also help improve market sentiment as well as developer sales,” said Raymond Cheng, head of China research at CGS-CIMB Securities.

The latest news pushed the Hang Seng Mainland Properties Index (.HSMPI) up more than 5% early on Monday and rose 3.5% in the afternoon. The CSI 300 Real Estate Index (.CSI000952) rose almost 2.0%.

Financial information provider REDD first released details about the real estate fund on Monday.

The fund will support more than a dozen developers, including China Evergrande Group (3333.HK), which is in a difficult situation, REDD reports, citing unnamed sources.

Regulators and local governments will select developers eligible for support from the fund, REDD said, adding that the fund can be used to purchase financial products issued by developers or to finance the acquisition of their projects by government buyers.

Beijing is also considering a national policy of issuing special bonds for slum reconstruction, the report said.

(1 dollar = 6.7553 Chinese yuan)

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Reporting from Beijing News and Claire Jim in Hong Kong; Additional reporting by Kevin Huang in Beijing; Edited by Ann Marie Roantry and Sri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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