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China’s real estate sector set for big shakeup with State Owned Enterprises now in pole position

China's real estate sector crisis deepening

Mergers and acquisitions (M&A) in China’s troubled real estate sector could gain momentum in the next few months. Beijing has already eased policies related to M&A. Last month, guidelines were issued by the People's Bank of China (PBOC) – the country’s central bank and China Banking and Insurance Regulatory Commission facilitating loans for state owned companies acquiring bleeding real estate firms.

While the move will help in supporting the crucial real estate sector, accounting for about 30 per cent of the country’s gross domestic product (GDP), it is also being seen as a mechanism which moves away from allowing the private sector to blossom.

After imposing stringent borrowing guidelines for real estate developers, Beijing is now looking at easing those norms to encourage big ticket mergers by state owned companies. Loans taken by the state-owned behemoths to take over beleaguered assets will not be classified as debt under norms that otherwise had aimed to cap borrowing.

Also read: Evergrande boss Xu Jiayin's journey–a fascinating rags to riches story

In 2020, PBOC, in a bid to avoid a housing bubble, announced the “three lines” related to stringent adherence to debt to cash, equity, and assets, a move that was aimed at restricting financing of real estate developers.

The BBC in a report said that the collapse of the real estate sector crisis is estimated to have wiped more than a trillion dollars off the value of the sector last year.

Besides being a major contributor to the Chinese growth story, about 29 per cent of all bank loans are directed towards housing.

“The huge dent on China’s housing sector has caused much worry for the citizens as real estate has been one of the most preferred savings instruments there and the near collapse of this sector has naturally become a serious cause for concern,” an analyst dealing with foreign affairs told India Narrative.

Beijing based Global Times said that “since September 2021, under the ‘three red lines’ rules, China's property market cooled, and a number of developers, including Evergrande Group, struggled with liquidity issues, affecting market sentiment.”

Last month, Chinese real estate giant Evergrande Group, once part of the prestigious Fortune 500, was officially declared a defaulter.

Meanwhile, Evergrande, according to reports, shifted out of its headquarters to another property it owns in Shenzhen to reduce costs. Another real estate major Shimao Group has also initiated talks with potential buyers for some properties as it tries to reduce its debts, the BBC said.