China’s Vice Premier Liu He underscored the country’s recent backflip on property policy at the World Economic Forum on Tuesday, signalling that authorities will continue to bolster the real estate industry as indebted developers struggle to shore up their finances.
In a special address at the gathering of global business and political leaders in Davos, Switzerland, Liu drew attention to the financial importance of China’s property sector and indicated that Beijing was carefully watching the country’s rapid decline in property prices and home sales.
“Many property developers suffered from liquidity shortages and deteriorating balance sheets,” he said. “The risks of a handful of leading property developers are particularly noticeable. If not handled properly, risks in the housing sector are likely to trigger systemic risks. That is why prompt steps must be taken to address them.”
Liu noted that China’s real estate sector accounts for nearly 40 percent of bank lending, about 50 percent of overall local government revenue and 60 percent of urban household assets.
The comments by the high-ranking official provide the latest confirmation that the deleveraging campaign launched in 2020 to reduce risky lending in the property sector has shifted into reverse, following the government’s announcement of a raft of support measures for the industry since November.
Liu’s remarks come after the official Xinhua news agency reported on Saturday that financial regulators have drafted a 21-point plan to improve the balance sheets of the country’s “high-quality” developers.
Under the plan, regulators will accelerate the release of RMB 150 billion ($22 billion) in previously announced loans to help developers finish stalled housing projects and will set up a further RMB 200 billion support fund. In addition, the government will roll out a RMB 100 billion loan support plan to boost the rental housing supply.
According to a Bloomberg account on Monday, citing people close to the matter, the real estate rescue plan calls for the People’s Bank of China to provide RMB 80 billion of loans through the nation’s largest distressed debt firms, including China Huarong Asset Management Co., at an annual rate of 1.75 percent.
The sources added that the bad-debt management companies are encouraged to match the amount from their own funds. The central government’s plan to provide RMB 200 billion in special loans to facilitate the delivery of housing projects was first reported in September.
The flood of support for the property sector follows a Bloomberg report in early January that Chinese authorities may ease borrowing caps on some developers and push back deadlines for meeting debt targets by at least six months, backpedalling on the strict “three red lines” policy that for two years has starved highly leveraged builders of liquidity, sparking a wave of defaults.
In November, the People’s Bank of China and the China Banking and Insurance Regulatory Commission unveiled a 16-point real estate rescue package including greater access to credit for developers and funding to ensure delivery of new homes. That measure came a few days after Beijing announced RMB 250 billion of expanded bond financing for private developers.
2023 May See Rebound
Despite the torrent of funding to support the handover of new homes to buyers, only 21 percent of the country’s stalled real estate projects had fully resumed construction by the end of 2022, according to a survey by consultancy China Real Estate Information Corp (CRIC) cited by Caixin Global. But the outlook for this year may be brighter as supportive measures ramp up.
“The government’s ever-widening policy support should help property firms restore health to their balance sheets and revitalize distressed projects,” said S&P Global Ratings credit analyst Fan Gao in a statement Wednesday.
The ratings agency cited recent actions to help developers repair their balance sheets – for example, allowing listed buildings to sell shares in China’s domestic market – which follow an initial wave of measures focused on restoring liquidity.
“We believe the next round of policies will be demand-focused, aimed at restoring homebuyer confidence,” S&P added. Nationwide property sales plunged 26.7 percent year-over-year in 2022, according to the National Bureau of Statistics, while property investment fell 10 percent year-over-year, the first annual decline since records began in 1999.
The government will aim to generate more demand over the next three to six months to address the slump in real estate investment and construction, according to S&P. The agency products a recovery that will likely be “L-shaped” and will begin only in the second half of the year or later.