Written by Claire Jim and Ziyi Tan
HONG KONG/BEIJING (Reuters) – China aims to ramp up lending to housing projects in coming days as part of a support package, but banks are reluctant to lend to the crisis-hit sector. That will remain a major hurdle for struggling developers. Those in greatest need of new funding.
Under the “project whitelist” mechanism, governments in 35 cities across the country are preparing to recommend housing projects in need of financial support to banks. Embattled developers hope the new mechanism will bring some relief by whitelisting some of their projects.
The mechanism is aimed at facilitating the issuance of project loans from banks, and comes after the Chinese government announced that it would increase liquidity in this sector after new home prices fell by the sharpest in December for the first time in about nine years. It was introduced in an effort to ease gender pressure and boost homebuyer confidence.
But developers, bankers and analysts say the latest funding support is a sign that banks are reluctant to make new loans to distressed real estate companies due to concerns about the impact on asset quality. It is pointed out that this may hinder the success of the measures.
The liquidation of real estate giant China Evergrande Group, ordered by a Hong Kong court this week, has made the outlook for property sales even more uncertain and raised banks' alarm.
A corporate lending manager at a joint-stock bank said banks would prioritize risk management under a new “project whitelist” mechanism rather than writing off “serious non-performing loans”.
Priority housing projects whitelisted for financing support are expected to be mostly developed by state-owned enterprises, which are a safer option as they have deep pockets. The manager said it is believed that Authorized to speak to the media.
The scale of the problem is frightening: Nomura estimates there are 20 million unbuilt and unsold homes and a funding gap of 3.2 trillion yuan ($445 billion).
Over the past year, Chinese authorities have repeatedly urged banks to extend “reasonable” loans to developers after a spate of defaults.
However, these efforts have had little success in defusing the debt crisis that began in 2021.
China's Ministry of Housing, the People's Bank of China and banking regulator the State Financial Supervisory Administration did not respond to Reuters' requests for comment.
“Avoid real estate”
Evergrande's liquidation highlights foreign investors' despair over China's debt levels, and Chinese banks' reluctance to extend new loans to the ailing real estate sector comes as Evergrande's liquidation highlights foreign investors' despair over China's debt levels. This comes as developers remain locked out of global borrowing markets.
According to data from the People's Bank, real estate development loans in the world's second-largest economy rose 1.5% year-on-year to 12.88 trillion yuan ($1.8 trillion) at the end of 2023, compared with 3.7 trillion yen in the same period last year. % increase).
“We try to avoid real estate projects if there are other promising projects,” said another manager at a state-owned bank's Hebei branch, who also requested anonymity due to the sensitivity of the matter. There is.
The manager said that the housing projects included in the white list compiled by the city government are just a guide, and that banks will conduct their own evaluations and determine the loan amount, if any.
In addition to state-owned enterprises, some of the housing projects included in the whitelist published so far are backed by private developers deemed financially sound.
The housing authority of southwestern China's Chongqing city said the initial whitelist included 314 projects, requiring a total of 83 billion yuan in funding and involving 22 financial institutions.
These projects include projects by private developers Longfor Group and Huayu Group, as well as state-backed China Vanke. City officials have not released the names of the financial institutions involved.
Reuters' calls to Chongqing's local housing authority went unanswered.
In response to a request for comment from Reuters, Longfor said it would put in place financing mechanisms and coordinate with authorities to maintain “stability” in its operations. Huayu and Vanke did not immediately respond.
some hope
An executive at a major private developer in default said its real estate projects were also included in Chongqing's initial whitelist, along with several other bankrupt peers.
However, despite being on the list, it is unclear whether the company will receive funding support from banks, the executive said.
Other developers said they were scrambling to get all eligible projects applied to local governments since the policy was announced last Friday.
Developers and investors said the development loans granted can only be used to ensure the completion of selected projects and will not help the company repay other debts and restore its financial strength. Li Yuan, chairman of Beijing G Capital Private Fund Management Center LLP, which specializes in credit investment, said the measures could not effectively lift market sentiment.
He said, “The gradual policy has pushed more people (investors) to the sidelines in the hope that better policies will be implemented in the future, and for now people are reluctant to move into the real estate sector. “It's discouraging investment.”
“We still think China is a dynamic and resilient market, but strong and thorough stimulus is needed to restore confidence.”
(1 dollar = 7.1794 Chinese Yuan)
(Reporting by Clare Jim in Hong Kong and Ziyi Tang in Beijing; Additional reporting by Xie Yu in Hong Kong; Editing by Sumeet Chatterjee and Lincoln Feast.)
