By Clare Jim and Ziyi Tang
HONG KONG/BEIJING (Reuters) – China aims to ramp up financing for home projects in the coming days as part of its support measures, but banks’ reluctance to lend to the crisis-hit sector will remain a major obstacle for the distressed developers who need fresh funding the most.
Under the “project whitelist” mechanism, governments of 35 cities across the country are gearing up to recommend to banks residential projects that need financial support. Distressed developers are hoping the new mechanism will bring succor with some of their projects getting included in the whitelist.
The mechanism, which is designed to expedite issuance of project loans from banks, comes as Beijing steps up efforts to ease a liquidity squeeze in the sector and boost homebuyer confidence as new home prices in December saw steepest drop in nearly nine years.
But the success of the latest financing support measure could be stymied by banks’ reluctance to extend fresh credit to the struggling real estate firms due to worries about the impact on their asset quality, developers, bankers and analysts say.
The liquidation of property giant China Evergrande Group ordered by a Hong Kong court this week has further clouded the outlook for property sales and added to the banks’ caution.
A corporate lending manager at a joint-stock bank said banks would prioritise risk controls under the new “Project Whitelist” mechanism rather than take “significant bad debts” onto their books.
The preferred residential projects on the whitelists to receive financing support are expected to be mostly those that are under development by state-owned enterprises, considered a safer bet due to their deep pockets, said the manager, who declined to be named as he is not authorised to speak to media.
The scale of the problem is daunting: Nomura estimates there are 20 million unconstructed and delayed pre-sold homes, with a funding shortfall of 3.2 trillion yuan ($445 billion).
Chinese authorities have over the past year repeatedly called for banks to extend “reasonable” lending to developers after a string of defaults.
Those efforts, however, have been met with little success in diffusing the debt crisis that started in 2021.
China’s housing ministry, the central bank and the National Financial Regulatory Administration, the banking regulator, did not respond to Reuters request for comments.
‘AVOIDING REAL ESTATE’
Chinese banks’ aversion to extending fresh credit to the ailing property sector comes as Evergrande’s liquidation highlights foreign investor despair at China’s debt levels and leaves developers locked out of global borrowing markets.
Real estate development loans in the world’s second-largest economy grew 1.5% year-on-year to 12.88 trillion yuan ($1.8 trillion) at the end of 2023, versus 3.7% a year ago, data from the central bank showed.
“We’re trying to avoid real estate projects if we have any other promising projects,” said another manager at the Hebei branch of a state-owned bank, who also declined to be named due to the sensitivity of the matter.
The manager said residential projects included in the whitelists compiled by the city governments were for their reference only and banks would do their own evaluation and determine the amount of loans to be granted, if at all.
Besides state-owned enterprises, some of the residential projects included in whitelists made public so far are backed by privately owned developers that are deemed financially healthy.
The housing authorities of the southwestern Chinese city of Chongqing said its first whitelist contains 314 projects, with a total of 83 billion yuan in financing needed and 22 financial institutions involved.
These projects include those by private developers Longfor Group and Huayu Group, as well as state-backed China Vanke. The city government did not name the financial institutions involved.
Reuters’ phone calls to local housing authority in Chongqing were not responded to.
Responding to Reuters’ request for comment, Longfor said it will coordinate with authorities to implement the funding mechanism and keep its operations “stable”. Huayu and Vanke did not immediately respond.
SOME HOPE
An executive at a large privately owned developer in default on its debt said their property projects had also been included in the Chongqing’s first whitelist, along with a few other distressed peers.
Still, it was not clear if the firm would receive financing support from banks despite being on the list, the executive said.
Other developers say they have been scrambling to apply all their eligible projects to local city governments since the policy was announced on last Friday.
Developers and investors said the development loans granted could only be used for ensuring the completion of selected projects, and will not be able to help the company to repay other debts and regain financial strength. Li Gen, Chairman, Beijing G Capital Private Fund Management Center LLP, which specialises in credit investment, said the latest measure failed to effectively lift market sentiment.
“The piecemeal policy is pushing more people (investors) to the sidelines, expecting better measures to be implemented in the future, which discourages people from investing in the property sector for now,” he said.
“We still think China is a dynamic and resilient market, but it needs a powerful and thorough stimulus policy set to get the confidence back.”
($1 = 7.1794 Chinese yuan renminbi)
(Reporting by Clare Jim in Hong Kong and Ziyi Tang in Beijing; Additional reporting by Xie Yu in Hong Kong; Editing by Sumeet Chatterjee and Lincoln Feast.)
