China eases pressure on the real estate industry, but reform remains a top priority

In recent weeks, Chinese regulators have eased pressure on real estate developers by relaxing credit controls and allowing more bond issuances to prevent the industry from collapsing. But analysts and government consultants said that these measures do not mean that President Xi Jinping’s suppression of the industry has retreated.

It is estimated that in the world’s second largest economy, real estate accounts for as much as one-third of overall economic activity, highlighting the broader impact of any major policy changes.In recent weeks, the industry has been struggling to cope Liquidity crisis This has driven some of the largest developers in the country, such as Evergrande,The verge of bankruptcy.

“The real estate crash still has systemic risks to the overall economy,” said Deng Haozhi, a real estate analyst in Guangzhou. “It is up to regulators to avoid this situation.”

“All our previous attempts to regulate the real estate market have failed because we withdrew in the middle of the reform,” said a policy adviser based in Beijing. “This time the central government is determined to stick to this plan.”

Wind data showed that mortgage loans rose by 1% in October, ending four consecutive months of year-on-year decline. Before that, Zou Lan, head of financial markets at the People’s Bank of China, said that some banks had misunderstood Beijing’s real estate policy.

Zou said the purpose of this is to restrict the flow of credit to over-leveraged real estate companies, not to stop issuing development loans. He added: “We have instructed major banks to maintain a steady and orderly disbursement of real estate loans.”

Executives from banks in Beijing and Shanghai told the Financial Times that the review time for mortgage applications has been shortened from six months in September to less than three months. “We have been too cautious in the past,” said a loan officer at China Merchants Bank. “We are returning to normal now.”

Developer bond issuance is also resuming. Since November 10, more than 20 state-owned developers have announced plans to issue relatively low-interest debt instruments totaling 28.8 billion yuan (US$4.5 billion) in the interbank market, and developers have historically struggled to obtain these bonds.

Zhejiang China Commodity City Group Co., Ltd. is a developer located in the eastern province of Zhejiang Province. It took only five days last week to obtain approval for the issuance of RMB 1 billion yuan notes for nine months this week. “In the past, this process easily took more than a month,” a company executive said. “Everything is accelerating now.”

However, for China’s most indebted private sector developers, such as Evergrande and KaisaTwo officials from Evergrande said that regulators hope they can restructure through asset sales, which may cause the company to shrink a lot.

Bo Zhuang, an analyst at asset management company Loomis Sayles in Singapore, said: “If several large developers fail, this will not be a problem.” “But the Chinese authorities need to ensure that policy reforms do not kill the entire industry.”

Loan officials say they are unwilling to help Over-leveraged real estate developers, Especially after the number of residential transactions in October fell by nearly a quarter compared with the same month last year.

“We don’t expect housing transactions to recover quickly because home buyers expect prices to weaken further,” said a loan officer at China Merchants Bank. “This may weaken the developer’s ability to generate cash flow to repay debt.”

The price of new homes fell in September and October, and buyers are also worried about the government’s recent launch of new homes. property tax In some cities. “Homebuyers will stand by and wait until they know how much taxation will affect them,” the loan officer said.

A Kaisa executive missed multiple payments of US dollar bonds this month, and said at a closed-door industry conference last week that the company has not benefited from the recent policy relaxation. “We are in a very difficult situation,” Li said, according to the record of his speech seen by the Financial Times.

At another conference hosted by the consulting firm China Index Academy last week, it was revealed that in terms of sales, 15 of the 50 largest developers in China in 2020-including 10 state-owned enterprises and 5 private companies Enterprise-has a “good response capability” risk.

Evergrande and Kaisa did not respond to requests for comment.

Developers are also hindered by the government’s stricter supervision of pre-sale funds, which were previously able to use these funds to make up the funding gap. In recent months, more than 20 cities have announced regulations restricting project pre-sale proceeds to be used only for the project.

Sunshine City Group Co., Ltd., a developer in southeastern China’s Fujian province, recently had to ask for a deferment of US$650 million worth of US dollar bonds, even though it reported more than 27 billion yuan in cash in September. According to people close to the company, most of its cash is locked in state-controlled escrow accounts dedicated to specific projects.

“How do we find alternative funding sources when our billions of cash cannot be used to repay debts,” a Sunshine City official complained in an open letter on social media earlier this month.

Additional reporting by Tom Mitchell in Singapore and Liu Xinning in Beijing

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