China targets $148bn in financing for cash-strapped developers

The move comes as the country is trying to revive the debt-stricken property sector and relieve pressure on the economy

Akriti Sharma and Clare JimReuters
Published : 28 July 2022, 07:45 AM
Updated : 28 July 2022, 07:45 AM

China will help property developers by issuing 1 trillion yuan ($148.2 billion) in loans for stalled developments, the Financial Times said on Thursday, as it tries to revive the debt-stricken sector and relieve pressure on the economy.

Once a key pillar of growth, China's property sector has been lurching from one crisis to another for the past year. A growing mortgage revolt by homebuyers this month has put more pressure on authorities to act quickly to quell risks of social unrest.

The People's Bank of China (PBOC) will initially issue about 200 billion yuan of low-interest loans, charging about 1.75% a year, to state commercial banks, the FT said, citing people involved in the discussions.

The plan, which was recently approved by China's State Council, will permit banks to use the PBOC loans along with their own funds to refinance stalled real estate projects, the report added.

Reuters has sought comment from PBOC.

In Hong Kong, the Hang Seng Mainland Properties Index .HSMPI reversed morning losses and gained 1% after the report, versus a 0.4% drop in the broader market .HSI.

The world's second-biggest economy, of which the property sector accounts for a quarter, only narrowly missed a contraction in the second quarter.

LIFELINES

Reuters reported this week, citing a state bank official with direct knowledge of the matter, that China planned to launch a real estate fund to help property developers resolve a crippling debt crisis, aiming for a warchest of up to 300 billion yuan ($44.5 billion).

Part of the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them to individuals as part of the government's drive to boost rental housing, the bank official said.

The central bank will support an initial 80 billion yuan of the fund, with state-owned China Construction Bank 601939.SS, 0939.HK contributingthe bulk of it with a relending facility from the PBOC, Reuters reported.

However, property developers and analysts said even one trillion yuan in new financing will not be sufficient to resolve all the debt woes facing the real estate sector.

Beijing is scrambling to reassure homebuyers who are threatening to stop paying mortgages on unfinished housing projects, which is spurring a shakeout among cash-starved property developers who have long relied on pre-sales of apartments.

Private developers account for around 70% of the market, and at least half of them have run into liquidity issues, according to analysts.

While new funding schemes led by the government will help to boost market sentiment, analysts said more measures will be needed to stabilise the sector.

Both home buyers and investors are staying away from the property sector after waves of developer defaults.

China's property investment fell 5.4% from a year earlier in the first half of the year, while property sales by floor area slumped 22.2% and new construction starts measured by floor area fell 34.4%, official data showed earlier this month.

"We expect stronger, but targeted, policy easing will be rolled out in the second half to support real estate construction and infrastructure spending," Oxford Economics said in a note to clients this week.

"While this will provide a short-term boost to the economy, it is not ideal for China's longer-term growth as the government and the financial sector are being forced to help sustain an unproductive (and failing) real estate industry."

Toufique Imrose Khalidi
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