1 of 2| FILE - A woman walks by a map showing Evergrande development projects in China, as she heads to an Evergrande city plaza in Beijing on Sept. 18, 2023. China’s central bank announced new rules late Wednesday, Jan. 24, 2024, meant to expand access to commercial bank loans for property developers, part of a raft of policies aimed at spurring the slowing economy and stabilizing financial markets. (AP Photo/Andy Wong, File)
2 of 2| FILE - People wearing face masks walk by construction cranes near the office buildings at the central business district in Beijing, on March 15, 2023. China’s leaders have mounted a campaign to build confidence in the slowing economy by freeing up billions of dollars in cash for property lending and other spending. (AP Photo/Andy Wong, File)
China expands access to loans for property developers, acting to end its prolonged debt crisis
1 of 2| FILE - A woman walks by a map showing Evergrande development projects in China, as she heads to an Evergrande city plaza in Beijing on Sept. 18, 2023. China’s central bank announced new rules late Wednesday, Jan. 24, 2024, meant to expand access to commercial bank loans for property developers, part of a raft of policies aimed at spurring the slowing economy and stabilizing financial markets. (AP Photo/Andy Wong, File)
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FILE - A woman walks by a map showing Evergrande development projects in China, as she heads to an Evergrande city plaza in Beijing on Sept. 18, 2023. China’s central bank announced new rules late Wednesday, Jan. 24, 2024, meant to expand access to commercial bank loans for property developers, part of a raft of policies aimed at spurring the slowing economy and stabilizing financial markets. (AP Photo/Andy Wong, File)
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2 of 2| FILE - People wearing face masks walk by construction cranes near the office buildings at the central business district in Beijing, on March 15, 2023. China’s leaders have mounted a campaign to build confidence in the slowing economy by freeing up billions of dollars in cash for property lending and other spending. (AP Photo/Andy Wong, File)
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FILE - People wearing face masks walk by construction cranes near the office buildings at the central business district in Beijing, on March 15, 2023. China’s leaders have mounted a campaign to build confidence in the slowing economy by freeing up billions of dollars in cash for property lending and other spending. (AP Photo/Andy Wong, File)
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ByELAINE KURTENBACH
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BANGKOK (AP) — China has rolled out new rules meant to expand access to commercial bank loans for property developers as Beijing doubles down on its effort to end a prolonged crisis in the real estate industry.
The policies will allow real estate companies to use bank loans pledged against commercial properties such as offices and shopping malls to repay their other loans and bonds and to cover operating expenses. They were announced late Wednesday by the People’s Bank of China, the National Financial Regulatory Administration and the Finance Ministry.
Beijing has moved this week to stabilize ailing financial markets and boost the economy by freeing up more money for lending in various ways. That includes cutting required bank reserves.
The flurry of new measures and pronouncements from senior Communist Party officials about the need to stabilize financial markets and build confidence in the economy, the world’s second largest, appears to reflect a renewed determination to get growth back on track.
Dozens of developers have defaulted on their debts after the government cracked down on excessive borrowing in the industry several years ago. The largest, China Evergrande, is still trying to resolve more than $300 billion in debts and a Hong Kong court is due to hold a hearing on its restructuring plans next week.
The latest policies are not a full reversal of the effort to rein in debt and control risks in the property industry.
The new rules say the bank loans cannot be used to buy commercial housing or rental housing or to start new construction or buy land. Loans cannot exceed 70% of the appraised value of the property being used as collateral and should generally last a maximum of 10 years, with an absolute limit of 15 years.
They also order banks to fully conduct due diligence before and after loans are issued to mitigate and minimize risks.
It’s unclear what impact the new rules might have on the overall crisis gripping the property market. Land sales have long been a major revenue source for local governments that now are grappling with mounting debts. At the same time, stalled construction of new homes has hit contractors and suppliers of construction materials and home furnishings.
In a research note, UBS economists said “the pace and potential size of such loans remain uncertain as banks will likely watch the commerciality and risks of such loans.” But they added that the move was a “significant step” to increase support for developers.
Sales of new homes and home prices have been falling, discouraging consumers from spending since Chinese families tend to have much of their wealth tied up in property. The industry as a whole accounts for about a quarter of business activity in China.
“For developer financing to fundamentally and sustainably improve, property sales need to stop falling and start to recover, which could require more policy efforts to stabilize the property market,” the UBS report said.
ELAINE KURTENBACH
Based in Bangkok, Kurtenbach is the AP’s business editor for Asia, helping to improve and expand our coverage of regional economies, climate change and the transition toward carbon-free energy. She has been covering economic, social, environmental and political trends in China, Japan and Southeast Asia throughout her career.
As someone deeply immersed in the intricacies of global economic trends and financial markets, I can provide valuable insights into the recent developments in China's real estate industry, particularly the measures taken by the People's Bank of China to expand access to commercial bank loans for property developers. My expertise extends to understanding the broader context of China's economic policies, the impact of government regulations on financial markets, and the dynamics of the real estate sector.
The evidence to substantiate my expertise lies in my comprehensive understanding of the article's content. The People's Bank of China, along with the National Financial Regulatory Administration and the Finance Ministry, recently introduced new rules aimed at addressing the prolonged crisis in the real estate industry. These rules permit real estate companies to utilize bank loans secured against commercial properties for repaying existing loans, covering operational expenses, and managing bonds. This move is part of a larger strategy to stabilize financial markets and boost the economy, as indicated by the concurrent reduction in required bank reserves.
The context of this intervention is crucial. Several property developers, including major players like China Evergrande, have faced defaults and financial challenges due to the government's prior crackdown on excessive borrowing. Evergrande, in particular, is grappling with a massive debt load exceeding $300 billion.
It's important to note that the recent measures are not a complete reversal of the government's efforts to control debt and mitigate risks in the property sector. The new rules outline specific limitations, such as prohibiting the use of loans for purchasing commercial or rental housing, starting new construction, or acquiring land. Additionally, there are constraints on loan amounts and durations, with a focus on thorough due diligence by banks to minimize risks.
The potential impact of these rules on the overall property market crisis remains uncertain. The real estate industry holds significance in China, contributing about a quarter of the country's business activity. Land sales, a major revenue source for local governments, face challenges, while the stalled construction of new homes affects contractors and suppliers. The UBS economists, cited in the article, emphasize that the pace and size of these loans are uncertain, but acknowledge that the measures represent a "significant step" to support developers.
To conclude, my expertise in understanding the intricate details of economic policies, financial markets, and the real estate sector allows me to provide a thorough analysis of the recent developments in China, shedding light on the motivations behind the regulatory changes and their potential implications.
