China has launched a pilot program intended to open its real estate market to private equity funds and foreign investors, marking the country's latest effort to revive its housing market.

The country's Securities Regulatory Commission said Monday that the program will allow qualified PE investors to raise funds for investment in residential and commercial real estate markets, as well as in infrastructure projects. Foreign investors are also encouraged to participate in these funds through the Qualified Foreign Limited Partnership program, which allows licensed international funds to invest in China's financial markets, the securities watchdog said in the statement.

Investors in the pilot program, which will be primarily institutional, are required to commit at least 10 million yuan (about $1.45 million). Capital raised from individual investors is not allowed to exceed 20% of a fund's total.

The program is part of China's sweeping efforts to lift its housing market, which last year experienced a slowdown in homebuilding, a sharp decline in property sales, sapping liquidity, and a mortgage strike. In 2022, Chinese private property companies raised a total of 227.1 billion yuan in capital, the lowest amount in seven years, the South Morning China Post reported, citing data from Chinese real estate consultancy CRIC.

"This is a response to the prolonged downturn in the real estate market in China, which has been going on for a little over a year," said Barry Naughton, a professor at the School of Global Policy and Strategy at the University of California, San Diego. "They are looking for ways to stabilize the market, and they are looking at this potential new source of demand."

The Chinese government is concerned about the future trajectory of real estate prices, as a significant share of local government revenue comes from land sales, Naughton added.

A group of developers has been struggling amid the country's property downturn. Chief among them is China Evergrande Group, which faltered into a credit crisis that caused a ripple effect throughout the housing market and other related industries such as construction services and building materials.

The Chinese government has unveiled a series of measures to revive its housing market. Recent data has signaled some improvements. New home prices steadied in January, putting an end to a 16-month slide, according to data published by the National Bureau of Statistics of China. 

At the same time, PE deal activity in China fell last year, but remained relatively healthy compared with historic levels, according to PitchBook data. Last year, PE firms struck 392 deals across mainland China, totaling $25.2 billion, PitchBook data shows. 

The number of PE deals is the highest in the past decade, but total deal value tailed off from 2021's record-setting buying binge, suggesting investors have become more cautious with what deals they chose to back and pared down deal sizes.

Last year's combined deal value reaches $53.5 billion if including deals in Taiwan and the special administrative regions of Hong Kong and Macao. 

Featured image by Victor Runov/Shutterstock

This article originally appeared on PitchBook News