China extends policies to support ailing property market

BEIJING – China has increased support for its ailing property market by extending relief measures for cash-strapped developers.

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 (PBOC) and National Financial Regulatory Administration (NFRA) said in a joint statement on 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, the statement said. Previously, the more-generous loan terms were to be applied only to loans that were due by late May 2023.

China’s real estate crisis is stifling a recovery

in the world’s second-largest economy, fuelling expectations for the government to take more steps to revive demand. Home sales resumed declines in June following a brief rebound earlier in 2023, 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 that 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 will 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 stabilise the sector,” Dr Larry Hu, head of China economics at Macquarie Group, wrote in a note to clients. “After all, credit risk for banks will 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,” Dr Hu said.

Stress in the property industry flared up this week after one state-backed developer, Sino-Ocean Group Holding, saw its bonds tumble on concerns over its debt load, while another, defaulter Shimao Group Holdings, failed to find a buyer for a US$1.8 billion (S$2.4 billion) project at a forced auction.

Leading builder China Vanke said the nation’s home market is “worse than expected”, while Goldman Sachs 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 home buyer confidence to reverse and sales to pick up,” Bloomberg Intelligence analysts 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.” BLOOMBERG