Just days after two private surveys reported that China’s average home prices continued to fall in August for the fourth straight month, there are growing signs that the government is allowing more borrowing in an attempt to bail out the troubled sector.
In a pair of unrelated moves this week, financial giant Ping An began offering downpayment loans to buyers needing some help to meet China’s stringent downpayment requirements, and the country’s financial regulators are now said to be allowing domestically-listed property firms to issue new notes on the interbank market.
Ping An Offering Downpayment Loans
Ping An Insurance (Group) Co. (2318), China’s second-largest insurer, started a service financing down payments for potential homebuyers as more Chinese cities ease purchase restrictions to bolster sales amid tight credit.
Ping An is now offering a loan services for buyers of new properties at 121 housing projects from developers Shimao and Greenland Group, according to an account in Bloomberg. The insurance firm is offering the loans at interest rates as low as 0 percent through its real estate commerce unit.
Homebuyers in China must typically make a downpayment of not less than 30 percent, however, under the new Ping An program, they may borrow that cash at 10 percent. However, the interest payments may be offset to zero via subsidies form the developer and Ping An for qualifying buyers.
The subsidies for home sales by Shimao and Greenland come just over a month after Guangzhou-based rival Evergrande Real Estate began offering similar downpayment loans to help stimulate sales.
The US policy of offering low or zero downpayments during its own housing boom is often blamed for helping to precipitate the country’s 2008 housing crash.
Developers Allowed More Domestic Borrowing
Also this week, unidentified Chinese banking officials have leaked that qualifying property firms will soon be allowed to sell medium-term notes in the interbank market. Prior to this unofficial annoucement the government has been maintaining stringent controls on loans to developers after a post-2008 stimulus-fueled lending spree helped to send housing costs spiralling upwards.
According to an account in Reuters, the developers will be allowed to use the proceeds of the note sales to fund new residential project, supplement their cashflow, or repay other loans. However, in what may be a sign that the notes are being allowed as a temporary stopgap to stave off defaults, the developers are not allowed to issue the notes to purchase new land.
The government is also said to be aiming eligibility for the new borrowing avenue at developers of medium and small-sized homes, as well as those engaged in government subsidised housing projects.
In previous months the government had attempted to encourage more mortgage lending to individuals, but until now had continued to hold back on loans to developers.
The continuing relaxation of financial controls around the real estate industry is a sign that the government is increasingly ready to support the industry in the face of the recent slowdown.
On August 31st real estate information provider China Index Academy announced that average home prices in China fell 0.59 percent across the country, the fourth straight month that the market had slid. The continued drop in housing prices came despite the majority of China’s larger cities revoking home purchase restrictions during July and August.