Lender financing to prop up developers

Following the lead of large State-owned commercial lenders, many joint-stock commercial banks and city commercial banks in China also agreed to provide financing to property developers, in the hope of stabilizing the housing market and preventing risks from spreading beyond the real estate industry.

Industrial Bank Co, a national joint-stock commercial lender based in Fuzhou, Fujian province, recently signed strategic cooperation agreements with 10 real estate companies to provide financing totaling 440 billion yuan ($62.87 billion), subject to certain terms and conditions being met.

Shanghai Pudong Development Bank Co agreed on Thursday to provide 530 billion yuan in similar financing to 16 property developers, including Vanke, Country Garden and Longfor Group.

On the same day, in similar deals, China Everbright Bank agreed to offer 260 billion yuan to 10 real estate companies.

China CITIC Bank, China Guangfa Bank and Bank of Shanghai also agreed to extend similar credit lines recently.

Chinese property developers have been under significant liquidity pressure amid the market downturn since the beginning of the fourth quarter, said a report published by the BOC Research Institute on Nov 30.

On Nov 23, the People's Bank of China, the country's central bank, and the China Banking and Insurance Regulatory Commission jointly announced 16 measures to ensure the steady and sound development of the housing sector. They urged financial institutions to support real estate financing through various channels, including development loans, credit loans, trust loans and bonds.

This signifies that policies supporting housing demand in China have shifted their focus from ensuring timely delivery of real estate projects to protecting market entities. The shift in policy focus is expected to help mitigate the liquidity risk of real estate developers and prevent the spread of risks, the report said.

Recent policies will also boost homebuyer confidence and help release reasonable housing demand. Therefore, the decline of real estate investment is likely to narrow from the low base of this year.

However, the process of a housing market recovery may be relatively slow. On the one hand, it will take time for China to mitigate risks in the real estate market, and it is not easy to reverse people's pessimistic attitudes toward the housing market in a short time. On the other hand, developers must reduce large commercial real estate inventories and deal with unfinished projects first, the report said.

Lian Ping, chief economist at Zhixin Investment and head of the Zhixin Investment Research Institute, said recent policies can restore the real estate market to the level of development seen before the end of 2020. At the same time, the policies will bring more convenience to real estate financing, which will play a significant role in stabilizing the housing market step by step.

Lian forecast that China's real estate market may truly stabilize and pick up in the second quarter of next year.

He also stressed that the financial sector can not solve all the liquidity problems faced by property developers.

Real estate companies must accelerate steps to sell homes. Their state of operation will really improve when they combine received payments for homes with financing support provided by banks, he said.