China property: new support measures will ease developers’ liquidity issues in near term, but are not enough to revive sector, analysts say
- New measures will ease developers’ liquidity issues in the near term, but Beijing needs to ‘announce more support measures to help the sector’, CGS-CIMB Securities’s Raymond Cheng says
- Move will have a ‘limited impact on housing demand’: Nomura
According to measures announced jointly by the People’s Bank of China and the National Financial Regulatory Administration on Monday night, firstly, mainland Chinese financial institutions must extend by another 12 months existing loans, including trust loans, given to developers that are due towards the end of next year.
Secondly, commercial banks can classify project-based special loans provided to developers before the end of 2024 in a lower risk category. Moreover, financial institutions or people will not be held accountable for any bad loans related to this policy, if they have already conducted appropriate due diligence.
“The new measures will help ease developers’ liquidity issues in the near term, if implemented,” Raymond Cheng, managing director of CGS-CIMB Securities, said in a note on Tuesday. “Overall, we estimate that loans due by end-2024 could account for some 30-40 per cent of developers’ total debts.”
“Meanwhile, the second measure should allow banks to lend more to developers, as these loans [can be classified] as less risky and personnel involved in the approval of these special loans will not take accountability for any bad debts, if they have conducted appropriate due diligence.”
But the measures are not sufficient to solve developers’ liquidity problems in their entirety, Cheng said, calling for more stimulus.
“We think regulators need to announce more support measures to help the sector, including providing new loans to developers, especially private developers with some liquidity issues,” Cheng said.
The new policies can ease financial risks in the loan market and improve developers’ cash flow for the construction and delivery of unfinished projects, said Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institution.
But they cannot solve the root problem – a decline in home sales due to low demand, a key issue that could lead to more liquidity issues for the sector, other analysts said.
“We believe these incremental property sector supportive measures should be more effective in alleviating the financial burdens of the exhausted property developers,” Dong Jizhou, a property analyst at Nomura, said in a research report. But they will have a “limited impact on housing demand”.
Sales of homes plunged 28.1 per cent year on year last month among China’s 100 largest developers, according to Cric, one of the country’s largest real estate brokers. Sales rose 8.5 per cent month on month for their lowest recorded growth in what is normally a buoyant month.
CGS-CIMB Securities’s Cheng suggested that the cancellation of home purchase restrictions across the board in China would improve market sentiment, while policy banks should provide funds to local governments in small cities, which can be used for subsidising home purchases.