Wed. Dec 1st, 2021

Chinese regulators have eased pressure on property developers by loosening credit controls and allowing more bond issuance in recent weeks in an effort to prevent the sector from collapsing. But analysts and government advisers say the measures do not represent a withdrawal from President Xi Jinping’s repression of the sector.

Property is estimated to account for as much as one-third of overall economic activity in the world’s second largest economy, highlighting the greater implications of any significant shift in policy. The industry has been struggling in recent weeks to liquidity crisis which has driven some of the country’s biggest developers, such as Evergrande, to the brink of bankruptcy.

“There are still systemic risks posed by a collapse of real estate for the wider economy,” said Deng Haozhi, a Guangzhou-based real estate analyst. “It’s up to regulators to avoid that scenario.”

“All our previous attempts to regulate the real estate market have failed because we have left halfway through renovation work,” said a policy adviser in Beijing. “This time, the central government is determined to stick to the plan.”

Mortgage lending rose 1 percent in October, ending four consecutive months of year-on-year declines, according to Wind data, after Zou Lan, chief financial officer at the People’s Bank of China, said some banks had Beijing ‘s property policy misinterpreted.

The goal, Zou said, was to limit the flow of credit to overburdened real estate companies rather than stop the issuance of development loans. “We have instructed large banks to keep the issuance of property loans stable and orderly,” he added.

Managers at banks in Beijing and Shanghai told the Financial Times the review period for mortgage applications dropped from six months in September to less than three. “We have acted too cautiously in the past,” said a lending official at China Merchants Bank. “We are now returning to normal.”

The issuance of bonds by developers is also resumed. Since November 10, more than two dozen state-owned developers have announced plans to issue a combined Rmb28.8 billion ($ 4.5 billion) of relatively low-interest debt instruments on the interbank market, to which developers have traditionally had difficulty accessing.

Zhejiang China Commodities City Group Co., a developer based in the eastern province of Zhejiang, took just five days last week to obtain approval to sell a nine-month Rmb1 billion note this week. “In the past, the process could easily take more than a month,” said a company manager. “Now everything is being speeded up.”

However, the policy expansion came too late for the country’s private sector developers with the most debt, such as Evergrande and Kaisa. Regulators hope they will be able to restructure by selling assets, which could lead to companies becoming much smaller, according to two officials at Evergrande.

“It will not be a problem if some major developers go under,” says Bo Zhuang, a Singapore-based analyst at Loomis Sayles, an asset manager. “But Chinese authorities need to make sure that the policy reform does not kill the entire industry.”

Loan officials say they are reluctant to help overblown property developers, especially after the number of residential transactions in October fell by almost a quarter per dollar value compared to the same month last year.

“We do not expect housing transactions to recover quickly, as property buyers expect prices to weaken further,” said a lending official at China Merchants Bank. “It could undermine developers’ ability to generate cash flow to pay off debt.”

New house prices fell in September and October, and buyers are also worried about the government’s recent efforts to property tax in some cities. “Home buyers stand by until they are clear about how much the tax will affect them,” the lending official said.

A manager at Kaisa, which missed several dollar bond payments this month, said at a closed-door industry conference last week that the company had not benefited from the recent policy easing. “We are in a very difficult situation,” Li said, according to a transcript of his remarks seen by the FT.

At a separate conference hosted by the China Index Academy, a consulting firm, last week, it was revealed that 15 of China’s top 50 biggest developers measured in sales in 2020 – including 10 state-owned and five private companies – “good capacity” to resist. risks.

Evergrande and Kaisa did not respond to requests for comment.

Developers are also hampered by tighter government oversight of pre-sale funds, which they could previously use to bridge funding gaps. In recent months, more than two dozen cities have announced rules restricting the use of a project’s pre-sale proceeds to that project only.

Sunshine City Group Co., a developer based in Fujian Province, in southeastern China, recently had to postpone $ 650 million in dollar bond payments, although it reported more than Rmb27 billion in cash in September. Most of his cash was locked up in state-owned custody accounts earmarked for specific projects, according to people close to the company.

“How can we find alternative sources of funding when our billions of cash can not be used to pay off debt,” a Sunshine City official complained in an open letter on social media earlier this month.

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

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