Two new measures announced by the People’s Bank of China (PBOC) and the National Financial Regulatory Administration (NFRA) to support the property market will ease the liquidity of embattled developers in the near term, but will neither solve all of their problems nor revive the sector, analysts said. According to the measures, Chinese financial institutions must extend by another 12 months existing loans, including trust loans, given to developers that are due towards the end of next year. Commercial banks are also permitted to classify project-based special loans provided to developers before the end of 2024 in a lower risk category. Moreover, financial institutions or people will not be held accountable for any bad loans related to this policy if they have already conducted appropriate due diligence.
“The new measures will help ease developers’ liquidity issues in the near term, if implemented,” Raymond Cheng, Managing Director of CGS-CIMB Securities, said. “Overall, we estimate that loans due by end-2024 could account for some 30% to 40% of developers’ total debts.” “The second measure should allow banks to lend more to developers, as these loans can be classified as less risky and personnel involved in the approval of these special loans will not take accountability for any bad debts, if they have conducted appropriate due diligence.” But the measures are not sufficient to solve developers’ liquidity problems in their entirety, Cheng said, calling for more stimulus. “We think regulators need to announce more support measures to help the sector, including providing new loans to developers, especially private developers with some liquidity issues,” Cheng said.
The new measures come after Beijing announced a 16-point rescue plan last November as Chinese developers continued to face serious liquidity issues and difficulties repaying onshore and offshore loans amid a persistent decline in home sales. About 50 Chinese developers have defaulted on some USD100 billion worth of offshore bonds over the past two years, according to a JPMorgan report in December, with 39 of them seeking debt restructuring plans with creditors for USD117 billion in stressed debt. Last month, Moody's said these developers were making slow progress and the chances of them getting back on track were slim. Last week, Chinese developer Kaisa Group Holdings received a winding-up petition from a Singapore hedge fund for the non-payment of yuan-denominated debt issued by the developer’s Shenzhen subsidiary. Kaisa is pursuing a restructuring plan to address more than USD15 billion in borrowings.
The new policies can ease financial risks in the loan market and improve developers’ cash flow for the construction and delivery of unfinished projects, said Yan Yuejin, Director of the Shanghai-based E-house China Research and Development Institute. But they cannot solve the root problem – a decline in home sales due to low demand, a key issue that could lead to more liquidity issues for the sector, other analysts said, as reported by the South China Morning Post.
Sales of homes plunged 28.1% year-on-year last month among China’s 100 largest developers, according to Cric, one of the country’s largest real estate brokers. Sales rose 8.5% month-on-month for their lowest recorded growth in what is normally a buoyant month.
