China’s central bank will extend the year-end deadline for lenders to cap their ratio of loans to the real estate sector, one of the strongest measures Beijing has ever taken to relieve the pressure of the credit crunch that is rocking the sector. Chinese real estate.
The People’s Bank of China’s expansion of the “housing loan collective management system” has the potential to affect 26% of China’s total bank lending, giving cash-strapped lenders and property developers a respite while they are struggling to survive a historic property sector downturn.
According to a document signed by the PBoC and the China Banking and Insurance Regulatory Commission, and viewed by the Financial Times, lenders now have more time to cap the ratio of their outstanding home loans to total loans from big banks at 40. %, and their outstanding mortgages to total loans at 32.5%.
The extension is the largest of a package of relief measures approved by central bankers and the CBIRC on November 11, according to the document.
“This is a vital pivot,” said Yan Yuejin, research director of the E-house China Research and Development Institute, adding that while the pressure against excessive lending remained, the measures relieved commercial banks and offered them leeway to issue new loans.
While some of China’s biggest banks have already met the deadline, many mid-sized and regional lenders have struggled to reduce home loan sizes after years of heavy reliance on the sector. Small lenders must meet the same requirements, but the ratio varies.
Bank loans and outstanding sponsor borrowings from trust funds due within the next six months can be extended for another year, according to the document.
Regulators have urged banks to also differentiate credit risks between individual projects and developers, as well as negotiate with homebuyers over extending mortgage repayments and credit rating protection. Lenders are also encouraged to raise funds to buy up unfinished projects and turn them into affordable rental housing, the document says.
These moves aim to keep lines of credit open to real estate groups and allow them to complete unfinished developments. They come against a backdrop of hundreds of thousands of Chinese mortgage holders protesting this year over apartments they had already paid for being left unfinished.
The package marked the latest sign that Beijing needs to backtrack on its sweeping property sector reforms amid fears of a credit crash and social instability.
The market was stunned by a growing number of defaults and rushed asset sales by Chinese property developers. The pace of new lending and total social finance from China fell faster than expected amid sluggish demand.
Evergrande, China’s most indebted developer with around $300 billion in debt, suffered a $770 million loss last week following the forced sale of one of its most valuable assets. It also plans to put the land of its headquarters in Shenzhen up for sale with an auction price starting at $1.06 billion.
Pressure has been mounting on Chinese property developers for several years after financial regulators introduced the ‘three red lines’, which cap developers’ debt-to-cash, equity and asset ratios, in a bid to deleverage the sector immovable.
The severity of the real estate slowdown, however, has raised fears of a generational slowdown in China’s economic growth. And that has increased the risk of contagion to Chinese local government financial institutions that have been heavily exposed to lending to the real estate sector.
The PBoC and CBIRC did not immediately respond to questions on Sunday.
Additional reporting by Edward White in Seoul and Thomas Hale in Shanghai