Developers tapped for urbanisation funding
Funding constraints are forcing local governments to turn to property developers to finance the mainland's ambitious urbanisation drive
Debt-laden local governments on the mainland are eyeing property developers' cash piles as an alternative means of funding their urbanisation plans.
Developers are in the frame to help finance the infrastructure needed for property sites - such as roads and sewerage - as part of moves to overcome funding constraints in urban development.
Local governments spend significant sums on primary land development, mainly on basic infrastructure and the often-required relocation of residents before a site can be put to auction.
"One of the biggest things local governments need to overcome is about funding," said Andy Chang, associate director at credit rating agency Fitch.
"It offers ample opportunities for developers to enter into primary land development in interior cities where there is lack of funding to build infrastructure. However, developers may be concerned about inherent business risk and strong funding demand," he said.
The central government this month stressed the importance of enhancing local governments' abilities to finance the estimated 40 trillion yuan (HK$50.7 trillion) urbanisation programme over the next two decades by improving tax systems and management of local bond issues.
Fitch said in a report that these measures would require a long gestation period and, in the interim, a viable alternative was to get developers to fund primary land development.