China tells bankers to support property market, homebuyers

Chinese banks have an estimated $10.7 trillion of outstanding loans to developers and homebuyers. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China has urged financial institutions to help local governments stabilise the rapidly cooling housing market and ease mortgages for some homebuyers, another signal that the authorities are worried about fallout from the debt crisis at China Evergrande Group.

At a meeting chaired by central bank governor Yi Gang, the authorities told financial institutions to cooperate with governments "to jointly maintain the steady and healthy development of the real estate market and safeguard the legitimate rights and interests of housing consumers", according to a statement by the People's Bank of China (PBOC) late on Wednesday (Oct 6).

The meeting, attended by officials from the country's banking and securities regulators, the housing ministry and executives from 24 banks, also called for "accurately grasping and enforcing the prudential management system of real estate finance around the goal of 'stabilising land prices, house prices and expectations'", the PBOC said.

The regulators asked banks to refrain from cutting off funding to developers all at once, according to a person familiar with the matter.

Lenders should continue supporting projects under construction and approve mortgages for buyers of homes that are qualified for pre-sales, said the source, asking not to be identified discussing a private matter.

The latest stance from the regulators echoed the PBOC's vow two days ago to ensure a "healthy property market" and protect home buyers' rights, as Evergrande is on the brink of collapse.

The struggling property giant is threatening to leave 1½ million buyers waiting for finished homes.

"The meeting reinforces an ongoing step by the Chinese authorities to address the potential contagion risks brought about by Evergrande," said Mr Yeap Jun Rong, market strategist at IG Asia.

"While tightening of regulations may remain, the recent meeting may suggest intentions for a more controlled improvement in credit, potentially improving some capital flows to China's developers."

Citigroup estimated that about 41 per cent of China's banking system assets were either directly or indirectly associated with the property sector by the end of last year, and any decline in prices may lead to a knock-on effect on banks' asset quality.

Chinese banks have an estimated 50.8 trillion yuan (S$10.7 trillion) of outstanding loans to developers and homebuyers.

Shares Rally

Shares of most Chinese developers rallied in the mainland and Hong Kong markets on Thursday, outperforming benchmarks.

The Shanghai Stock Exchange Property Index gained as much as 2.3 per cent, while the Hang Seng Property gauge jumped 1.5 per cent.

Still, Evergrande's dollar bond due in 2025 is indicated at 23.2 cents on the dollar, down 0.3 cent, Bloomberg-compiled prices show.

"We think it's definitely good for developers given that developers in the past 12 months have found it very difficult on the financing side," said Mr Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, referring to policy discussed at the meeting.

Property industry share prices "have been down a lot in the past few months on policy concerns and the Evergrande issue", he said.

The latest PBOC meeting may signal that the authorities might consider a "marginal adjustment" of real estate credit policy to ensure people with real needs for housing get loans, according to a report carried on the WeChat account of the official Securities Times on Thursday, citing some analysts.

Indeed, there have been signs of some easing, at least in the issuance of mortgage-backed securities, which allow banks to securitise their housing loans and free up capacity for more lending.

Chinese lenders' issuance of securities backed by residential mortgages this month hit the highest since March, rebounding from a recent lull after the authorities moved to curb their use in an effort to rein in property prices.

Issuance rose to 71 billion yuan, close to the previous high of 71.5 billion yuan in March, according to data as at Wednesday from the China Securitisation Analytics website. The market saw no issuance in June and July.

Still, the PBOC reiterated in the statement that it will not use the property market as a tool to stimulate the economy for short-term growth and will stick to the long-standing government principle that "housing is for living, not for speculation".

Sounding a note of caution over speculation about a new round of property credit easing, the state-run Economic Daily said in a commentary on Wednesday that China should not loosen its policies just because some real estate developers are running into trouble.

US Secretary of State Antony Blinken said the United States wants China to act "responsibly" when it comes to addressing the impact of Evergrand's debt crisis. His comments are the first remarks by a top Biden administration official on the developer.

"China has to make sovereign economic decisions for itself, but we also know that what China does economically is going to have profound ramifications, profound effects, on literally the entire world because all of our economies are so intertwined," he said on Wednesday in an interview with Bloomberg Television.

Join ST's Telegram channel and get the latest breaking news delivered to you.