Banks press Chinese mainland developers to speed property sales

PUBLISHED : Saturday, 18 August, 2012, 12:00am
UPDATED : Saturday, 18 August, 2012, 3:10am

Banks have reportedly asked highly leveraged mainland developers to speed up property sales, in a tougher refinancing environment.

Alan Chiang Sheung-lai, head of residential property at DTZ on the mainland, said banks had been tightening lending to developers for the past two years and had shifted preference to short-term property loans in order to reduce risks.

"Lenders are demanding developers sell homes faster or directly transfer part of the sale proceeds for debt repayment while negotiating for refinancing," Chiang said

He said he believed mainland lenders might demand more from small developers as the latter tended to be less flexible in pricing strategy and faced higher risks.

The China Banking Regulatory Commission (CBRC) has told lenders they should also demand more collateral or tell developers to sell projects or stakes if the banks believed the developers could face difficulties repaying loans due within a year, Bloomberg has reported, quoting a person with knowledge of the matter.

Mortgages and loans to developers classified as "special mention", or those at risk of souring, had started to rise recently, the source said.

Lack of funding, high leverage and a growing pile of loans about to mature had increased the risk that some developers' financing lines might collapse, the CBRC told lenders, according to the source.

The CBRC also reportedly warned that risks might be obscured because some real estate companies obtained funding through personal loans or borrowings by affiliated businesses after bank credit for developers dried up. The regulator told banks that risks in lending to local government financing vehicles remained high, the Bloomberg source said.

A small number of lenders' outstanding loans to local government financing vehicles rose this year, violating a CBRC requirement, while some banks continued granting credit to borrowers they had disqualified earlier, the source said.

Bankers familiar with mainland lending policy told the South China Morning Post that they had not received any written notices from the banking regulator about tightening property lending.

"Lending to the property sector has always been very tightly controlled," said an executive at a state-owned bank who did not want to be named.

An executive at another state lender, who also refused to be identified, echoed that view. The executive said his bank had been very selective in lending to developers and had come up with an internal list of creditworthy companies. Most of these were regional or national heavyweights.

The two executives said the CBRC did give "verbal guidance" to banks from time to time, which was less binding than official notices.

Rita Zhang Yan, director of Longfor Properties' investment and financing centre, however, said banks had been easing credit since the beginning of this year.