MNI: China To Boost Developer Financing Support Further

China is expected to increase financing support for property companies to prevent a fresh wave of defaults disrupting the ongoing recovery, while accelerating the acquisition of unsold homes and land to alleviate the liquidity crunch, advisors and analysts told MNI, as developers face mounting bond maturities this year.

Real-estate companies' total credit lines via the whitelist financing mechanism will grow 15-20% this year from 2024’s over CNY5 trillion, said Yan Yuejin, vice president at the E-house China Research and Development Institution, who expects an expansion of the mechanism that allows city governments to recommend residential projects to banks for expedited lending.

Officials need to boost the scale and relax the whitelist’s standards to cover more developers and accelerate demand-side stimulus to boost the recovery of property sales and improve cash flow, said Xie Yifeng, dean at the China Urban Real Estate Research Institute and a consultant to the Ministry of Housing.

BOND MATURITIES

About CNY526 billion of developer-issued domestic and offshore bonds will mature this year, up from CNY483 billion in 2024, according to the China Real Estate Information Corporation.

While the property companies have received extensions on their existing bank loans, large repayment risks in the bond market could threaten the housing market’s recovery should a dozen or more firms default, Xie said. He called for greater policy support to promote developers’ restructuring and mergers and acquisitions, noting real-estate companies could achieve a normal debt risk by 2028-2030. (See MNI INTERVIEW2: China Developers Need More Help To Consolidate)

“Overall the risk is manageable,” Yan added, but cautioned local governments needed to establish a clear timetable of maturing bonds and identify the source of repayment funds to avoid investor panic.

Developers should speed up the revitalisation of their assets amid a quicker push from officials to acquire unsold homes and vacant land by using a larger proportion of local government special bonds this year, he argued.

ACQUISITIONS

Governments could use about CNY1 trillion out of this year’s CNY4.4 trillion local special bonds to acquire properties, in addition to the CNY300 billion affordable housing re-lending facility, while another CNY700-800 billion of next year’s issuance could still be allocated to such use, Xie estimated. (See MNI China’s Property Measures Face CNY2 Trln Funding Gap) 

“It's challenging for local authorities to turn acquired homes and land into profitable affordable housing projects,” Xie said, adding the 20-30% sales discount dampened developers' willingness to sell. State-owned developers were better placed to benefit from land-recycling, as private developers had already used a significant amount of their land as collateral and were short of funds to release plots, he added.

Central authorities granted local officials greater autonomy to execute acquisitions in early March, including decisions on purchasing entities, prices and intended uses.

PRIVATE BUYERS

Yan expects the government will allow some private enterprises to become purchasers, such as manufacturing companies wanting to develop employee dormitories, which will deliver more pricing flexibility.

“It is necessary to investigate market demand before expanding the use,” said Yan, highlighting Zhengzhou city’s cultural and tourism projects and Hainan province’s healthcare proposals.