Financing to Chinese homebuilders is looking shaky as the government cracks down on real estate lending
Financing for Chinese property developers plunged by 58.15 percent month-on-month in August amid an intensifying government clampdown on the housing market, according to data cited by the Securities Times.
Total new financing provided to China’s builders reached RMB 36.83 billion ($5.15 billion) during the month, close to the 2019 low point of RMB 36.80 billion recorded in May. The new data comes after the China Banking and Insurance Regulatory Commission (CBIRC) launched a crackdown on risky lending to developers and homebuyers in dozens of cities last month.
Fresh debt financing among the 40 housing developers tracked by Tospur Real Estate Consulting dropped by 59.69 percent from July to RMB 32.67 billion, accounting for 88.72 percent of all financing to the group of elite builders, according to the report. Equity financing fell by 40.22 percent to RMB 4.15 billion.
Trust financing also fell by 63.28 percent to RMB 6.62 billion, the data collected by the Shanghai-based real estate consultancy showed. The financing option provides an alternative means for developers to raise cash through private-equity funds and securitisation tied to commercial properties.
US dollar bonds issued by Chinese real estate companies plummeted by 82.52 percent to $765 million amid Beijing’s tightened restrictions on offshore bond offerings.
Lenders Face Fresh Scrutiny
Zhang Hongwei, director of Tospur’s research division, told the Securities Times that the developer financing woes were mainly due to the government’s increasingly restrictive lending policies.
CBIRC chairman Guo Shuqing
In early August, the CBIRC issued a circular outlining plans for targeted inspections in 32 mainland cities to ensure that banks are lending according to official guidelines for mortgages and loans to developers.
The regulator’s move, believed to target at least 75 banks, focused on institutions lending on the largest scale to the real estate sector and having the greatest exposure to property market-related risks. These risks included having provided large loans to developers or having supported development projects which target fast-paced sales.
Last week, the CBIRC released a circular on its inspection of small- to medium-sized banks at the provincial level, openly criticizing those that have provided illicit lending to real estate projects. The campaign comes after the commission issued a notice in May singling out various types of banned lending to the real estate sector, including illicit loans to fund land purchases by developers, lending to non-eligible developers and allowing homebuyers to borrow money for down payments.
Trust Firms Retreat on Real Estate Products
The government’s tightening grip on loans has prompted trust companies to pull back on their real estate financing activities. Both China Everbright Trust and CITIC Trust said in July that they would withdraw trust products released for property investment and would refund investors, Caixin reported. The move reportedly came after CBIRC summoned ten trust companies to a meeting, demanding that they bring the scale and growth of their property financing businesses under control.
Tospur’s Zhang told the Securities Times that as the central government continues to roll out cooling measures and financing restrictions related to the property market, developers will face mounting challenges with land acquisition, property sales and loan repayment.
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