China central bank eyes $205 billion bailout for cash-strapped developers: FT

The People's Bank of China will initially issue about 200 billion yuan of low-interest loans to state commercial banks. PHOTO: REUTERS

BENGALURU/HONG KONG (REUTERS) - China will help property developers by issuing 1 trillion yuan (S$205 billion) in loans for stalled developments, the Financial Times said on Thursday (July 28), as the government 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 home buyers this month has put more pressure on the 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 per cent 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.

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

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


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 war chest of up to 300 billion yuan.

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 contributing the bulk of it with a relending facility from the PBOC, Reuters reported.

However, property developers and analysts said that 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 home buyers who are threatening to stop paying mortgages on unfinished housing projects, which is spurring a shake-out among cash-starved property developers who have long relied on pre-sales of apartments.

Private developers account for around 70 per cent 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 per cent from a year earlier in the first half of the year, while property sales by floor area slumped 22.2 per cent and new construction starts measured by floor area fell 34.4 per cent, official data showed earlier this month.

Oxford Economics said in a note to clients this week that it expected “stronger, but targeted, policy easing” to be rolled out in the second half to support real estate construction and infrastructure spending.

“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,” it said.

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