A large stock of unfinished housing is among the major problems to be addressed, the fund says Construction cranes at a new building site in the Pudong section of Shanghai © Getty Images / Ed Freeman

China is still facing a real estate crisis and its government has a lot of work to do to fix the problems, the International Monetary Fund (IMF) said on Friday.

The cash-strapped property sector, which accounts for a quarter of the Chinese economy, has struggled with defaults and stalled projects, hitting market confidence and dragging down growth in the world’s second-largest economy.

IMF economists welcomed recent measures by the country’s authorities to ease restrictions on financing for the sector but pointed out that “additional action” will be needed in order to end the real estate crisis.

“If you look at the measures, a lot of them address financing issues for the developers that are still in relatively good financial health, so that will help,” deputy director in the IMF’s Asia Pacific Department, Thomas Helbling, told CNBC.

However, property developers are still facing “severe” difficulties, he noted, adding that “the issue of the large stock of unfinished housing more broadly is not yet addressed.”

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The Covid-19 pandemic has seriously affected the housing market, causing financial difficulties resulting in a slowdown in construction in the country where apartments are typically pre-sold to consumers. Last year, some home buyers even halted their mortgage payments in protest.

Chinese authorities subsequently emphasized the need to help developers finish building those pre-sold apartments. Still, residential floor space sold in China slumped by almost 27% last year, while real estate investment dropped by 10%, according to official numbers.

Now Beijing has to figure out how restructuring can be achieved, and who will absorb the losses, Helbling said.

“Otherwise, the sector will continue to slump and remain a risk and also constrain households that are overexposed to the property sector, and will have cash tied up and their savings tied up, which will be a handicap for the broader economic recovery,” he added.

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