China banks rush to offer loans to state-owned firms buying unsold homes
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The directives – aimed to clear excess housing inventory – underscore the urgency in addressing the nation’s property crisis.
PHOTO: AFP
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BEIJING - China’s mega banks are urging branch managers to lend to state-owned companies that buy unsold homes, offering a quick show of support for the government’s housing rescue package
The Industrial and Commercial Bank of China (ICBC) and other state lenders are guiding managers to lend against the purchased properties as collateral, according to people familiar with the matter. ICBC did not respond to a request for comment.
The directives – aimed largely as a way to clear excess housing inventory – underscore the urgency in addressing the nation’s property crisis. The push is fraught with challenges for banks, given the uncertainty of property valuations and the difficulty for local governments to generate returns.
The People’s Bank of China last week said it would establish a nationwide programme to unleash 300 billion yuan (S$57 billion) in cheap funding to help state-owned companies buy unsold homes. The support package also includes lower down-payment requirements for home buyers.
The central bank cash will translate into an estimated 500 billion yuan of credit overall, with funding to be extended to 21 banks at a rate of 1.75 per cent. The loans, designed to have a one-year term, will be allowed to roll over four times.
The thrust will centre on making merger and acquisition (M&A) loans, with rates set on a case-by-case basis, the people said, asking not to be named discussing private information. Banks currently charge about 4 per cent annualised rates for state developers and twice as much for private firms, they added.
It is unclear whether the guidance will lead to a big jump in lending, given that staff are also being reminded to conduct due diligence and ensure loans are used as intended, the people said. M&A loans are provided to allow state companies to acquire distressed projects from developers with debt issues.
Policymakers last week unveiled their most forceful attempt yet to lift the country’s plummeting real estate sector, and encouraged local governments to buy unsold homes from developers for conversion into affordable housing. In April, China’s 24-man Politburo called for policies to address the nation’s stock of unsold homes.
China’s real estate crisis has become the biggest drag on economic growth, as the indebted developers have failed to deliver pre-sold homes. Official data on May 17 showed that home prices in April recorded the steepest month-on-month declines in a decade. BLOOMBERG
