China will extend policies to support cash-strapped developers and shore up the ailing real estate sector, including allowing the postponement of loan repayments by a year.
(Bloomberg) — China will extend policies to support cash-strapped developers and shore up the ailing real estate sector, including allowing the postponement of loan repayments by a year.
Financial institutions will be encouraged to negotiate with real estate firms to extend outstanding loans in order to ensure the delivery of homes under construction, according to a joint statement from the People’s Bank of China and National Financial Regulatory Administration. Some outstanding loans including trust loans due before 2024 will be given a one-year repayment extension, it said.
China’s two-year real estate crisis is stifling a recovery in the world’s second-largest economy, fueling expectations for the government to take more steps to revive demand. Home sales resumed declines in June following a brief rebound earlier this year, adding to pressure on debt-laden developers.
Besides the property market, other facets of the economy are also showing weakness. Consumer spending is sluggish, exports are flagging and local government debt is soaring. Data today showed the nation’s consumer inflation rate was flat in June while factory-gate prices fell further, deepening deflation concerns and adding to evidence that the recovery is weakening.
In the statement, the PBOC and NFRA said project-based special loans provided by commercial banks to developers before the end of 2024 would not be classified as higher risk. They also urged financial institutions to ramp up support to ensure construction project delivery.
“China’s latest policy support toward the property sector was a bit surprising – given the low expectations on the property market,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. “The policies are intended to hedge against the strong headwinds in the market.”
Stress in the property industry flared up this week after one state-backed developer, Sino-Ocean Group Holding Ltd., saw its bonds tumble on concerns over its debt load, while another, defaulter Shimao Group Holdings Ltd., failed to find a buyer for a $1.8 billion project at a forced auction.
Leading builder China Vanke Co. said the nation’s home market is “worse than expected,” while Goldman Sachs Group Inc. now projects a higher default rate for Chinese high-yield property dollar bonds.
“As long as physical property has lost its investment appeal as an asset class, it will be difficult for homebuyer confidence to reverse and sales to pick up,” Bloomberg Intelligence credit analysts Andrew Chan and Daniel Fan wrote in a note on July 5. “Some surviving Chinese developers’ may choose to default or restructure rather than attempt to resolve their debt problems.”
–With assistance from Foster Wong, Russell Ward and Yujing Liu.
(Adds more details of measures from fifth paragraph.)
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