China signaled more economic support measures are imminent after authorities took a small step toward supporting the ailing property market by extending loan relief for developers.
Top state-run financial newspapers ran reports Tuesday flagging the likely adoption of more property supportive policies, along with measures to boost business confidence.
Earlier, financial regulators stepped up pressure on banks to ease terms for property companies by encouraging negotiations to extend outstanding loans. The People’s Bank of China and National Financial Regulatory Administration said in a joint statement Monday that the aim is to ensure the delivery of homes that are under construction.
Some outstanding loans — including trust loans due by the end of 2024 — will be given a one-year repayment extension, it said. Previously, the more-generous loan terms were to be applied only for loans that were due by late May 2023, as part of a 16-point plan unveiled late last year.
“The move signals that regulators consider it’ll take a year and a half more for developers to see their fundraising and operations normalize,” said Liu Shui, a research director at China Index Holdings Ltd. “It means the housing market downturn and developer risks have been worse than they expected earlier.”
Loans due by the end of 2024 account for about 30% to 40% of developers’ total debts, according to Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, adding the measures may help ease developers’ liquidity in the short term if implemented.
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China’s real estate crisis is stifling a recovery in the world’s second-largest economy, fueling expectations for the government to take more steps to revive demand. Home sales resumed declines in June following a brief rebound earlier this year, adding to pressure on debt-laden developers and appetite for resources such as iron ore.
To revive the market, regulators have long been expected to come up with more supportive policies. People familiar with the matter said in June that China is considering a new basket of measures, such as reducing down payments in some non-core neighborhoods of major cities, lowering agent commissions on transactions, and further relaxing restrictions for residential purchases.
China Securities Journal, the country’s flagship securities newspaper, said Tuesday that China is expected to “accelerate” policy roll-out in order to promote the stable and healthy development of its real estate market. In a separate report, it also said the government may introduce measures to boost business confidence among private, state-owned and foreign firms following officials’ recent meetings with company executives.
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Meanwhile, Shanghai Securities News cited Wang Qing, chief macro analyst at Golden Credit Rating, as saying that policymakers may take further measures such as relaxing property purchase and mortgage rules as well as cutting home loan rates to achieve a soft landing of the real estate market.
A Bloomberg Intelligence gauge of Chinese property shares rose 1% on Tuesday afternoon, paring this year’s decline to 26%. Iron ore futures in Singapore rose as much as 2.5%. Chinese high-yield dollar bonds, dominated by developers’ notes, were little changed in the morning, according to credit traders.
Besides property, other facets of the economy are also showing weakness. Consumer spending is sluggish, exports are flagging and local government debt is soaring. Data on Monday showed the nation’s consumer inflation rate was flat in June while factory-gate prices fell further, deepening deflation concerns and adding to evidence that the recovery is weakening.
In the statement, the PBOC and NFRA said project-based special loans provided by commercial banks to developers before the end of 2024 would not be classified as higher risk. They also urged financial institutions to ramp up support to ensure the delivery of construction projects.
“Today’s easing, which focuses on developer financing, is far from enough to stabilize the sector,” Larry Hu, head of China economics at Macquarie Group, wrote in a note to clients. “After all, credit risk for banks would remain elevated if the housing market stays weak.”
Still, the move may signal that more property steps are coming, he added. “Looking ahead, we expect to see more easing on the demand side, such as lowering the down-payment ratio and easing purchase restrictions,” Hu said.
Such loosening may continue to be limited to smaller prefectures, such as in certain districts instead of in a city as a whole, said Ethan Wang, chief investment strategist at Standard Chartered Bank’s China wealth management business.
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A “bazooka” package that can quickly turn the property sector around isn’t likely, said Nomura Holdings N33 Inc.’s chief China economist Lu Ting.
Debt Pressure
China Index Holdings’ Liu believes that real estate enterprises are still under great pressure to repay debts and authorities need to increase financing support, Shanghai Securities News reported. Currently, developers have outstanding bonds of about 2.9 trillion yuan (US$401 billion) on their balance sheet, with nearly 1 trillion yuan of the debts due within the next 12 months and a maturity wall expected in the third quarter.
Renewed concerns about the property sector have increased pressure in China’s credit market. Declines in high-yield dollar bonds accelerated this month amid debt worries involving major builders Sino-Ocean Group Holding and Country Garden Holdings. Meanwhile, two smaller peers in late June failed to make bond payments.
Leading builder China Vanke said the nation’s home market is “worse than expected,” while Goldman Sachs Group now projects a higher default rate for Chinese high-yield property dollar bonds.
“As long as physical property has lost its investment appeal as an asset class, it will be difficult for homebuyer confidence to reverse and sales to pick up,” Bloomberg Intelligence credit analysts Andrew Chan and Daniel Fan wrote in a note on July 5. “Some surviving Chinese developers’ may choose to default or restructure rather than attempt to resolve their debt problems.”
