China stepped up support for its ailing property market by extending relief measures for cash-strapped developers through next year.
(Bloomberg) — China stepped up support for its ailing property market by extending relief measures for cash-strapped developers through next year.
Two of China’s top financial regulators stepped up pressure on financial institutions to ease terms for property companies, by encouraging negotiations to extend outstanding loans. The People’s Bank of China and National Financial Regulatory Administration said in a joint statement Monday that the aim is to ensure the delivery of homes that are under construction.
Some outstanding loans — including trust loans due by the end of 2024 — will be given a one-year repayment extension, it said. Previously, the more-generous loan terms were to be applied only for loans that were due by late May 2023.
China’s 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 on Monday 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 the delivery of construction projects.
“Today’s easing, which focuses on developer financing, is far from enough to stabilize the sector,” Larry Hu, head of China economics at Macquarie Group Ltd., wrote in a note to clients. “After all, credit risk for banks would remain elevated if the housing market stays weak.”
Still, the move may signal that more property steps are coming, he added.
“Looking ahead, we expect to see more easing on the demand side, such as lowering the down-payment ratio and easing purchase restrictions,” Hu said.
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, Yujing Liu and Jacob Gu.
(Adds analyst’s comments starting in second paragraph after QuickTake tout.)
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