China extends bank lending limit for real estate sector

China’s central bank will extend a year-end deadline for lenders to cap lending rates in the property sector, in one of Beijing’s strongest moves yet to ease pressure from the financial crisis. The credit crunch is rocking China’s real estate sector.

The People’s Bank of China’s expansion of the “collective management system for real estate loans” is likely to affect 26% of China’s total bank loans, helping lenders Borrowers and cash-strapped real estate developers have breathing space as they struggle to survive a The real estate industry has a history of recession.

According to a document signed by the PBoC and the Banking and Insurance Regulatory Commission of China, and seen by the Financial Times, lenders now have more time to cap the loan balance ratio for real estate. their assets on total loans at major banks at 40%. and their outstanding mortgages on a total loan of 32.5%.

According to the document, the extension is the most significant of a series of relief measures approved by central banks and the CBIRC on Nov.

“It’s an important pivot,” said Yan Yuejin, research director at E-house China Research and Development Institute, adding that while pressure against over-lending remained On the other hand, these measures have helped commercial banks reduce the time it takes to issue new loans.

While some of China’s biggest banks have met deadlines, many medium and regional lenders are struggling to reduce the amount of real estate lending after years of heavy reliance on the sector. Smaller lenders need to meet the same requirements but at different rates.

The document shows that unpaid bank debts and loans from developer trusts maturing within the next six months could be extended for a further year.

Regulators urged banks to also differentiate credit risk between individual projects and developers, as well as negotiate with homebuyers about mortgage repayment extensions and credit score protection. Lenders are also encouraged to raise capital to buy up unfinished projects and turn them into affordable rental homes, the document shows.

These moves are designed to keep credit lines open to real estate corporations and enable them to complete unfinished developments. They come in the context of hundreds of thousands Chinese mortgage owners protest this year about the apartments they paid to leave unfinished.

The package marks the latest sign that Beijing is backing away from sweeping reforms in its property sector amid fears of a credit crunch and social unrest.

The market has been stunned by the rising number of defaults and hasty property sales by Chinese property developers. China’s pace of new lending and total social financing fell faster than expected amid sluggish demand.

Evergrande, China’s most indebted developer with about $300 billion in debt, last week lost $770 million after the financial crisis. forced to sell one of his most valuable assets. It also plans to put up its headquarters plot in Shenzhen with auction prices starting at $1.06 billion.

Pressure has been mounting on China’s property developers for several years after financial regulators introduced “three red lines”, limiting debt-to-cash, equity ratios. and assets for developers, to reduce leverage for the real estate sector.

However, the severity of the property downturn has raised concerns about a generational slowdown in China’s economic growth. And it was increased risk of infection flooding into China’s financial local government institutions have been heavily exposed to real estate sector lending.

The PBoC and CBIRC did not immediately respond to questions on Sunday.

Additional reporting by Edward White in Seoul and Thomas Hale in Shanghai

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