Chinese banks must bail out property developers as mortgage boycotts threaten economy

Chinese banks have been urged to bail out struggling property developers to help them complete unfinished housing projects and stave off a growing mortgage strike that threatens to seriously damage the economy.

As thousands of homebuyers unite to refuse to follow mortgages installed on unfinished apartments bought off-plan, regulators have stepped up their efforts to encourage lenders to lend to qualified real estate projects.

The China Banking and Insurance Regulatory Commission (CBIRC) told the official industry gazette on Sunday that banks should meet developers’ financing needs when reasonable.

The CBIRC said it believes that with concerted efforts, “all difficulties and problems will be properly resolved”, reported the China Banking and Insurance News.

Chinese bank stocks rallied further on Monday on regulator intervention and belief that the Beijing government will have enough policy measures to control the situation.

However, it was unclear whether banks would be able to absorb the cost of the mortgage strike, which affects around 100 projects in 50 cities.

The value of the affected mortgages is 2 billion yuan ($300 million), bank data showed on Friday, but some analysts believe the actual figure is much higher. GF Securities in Guangdong, for example, said the amount could be 2 billion yuan ($300 billion).

China’s property sector, which accounts for up to 30% of economic output, has been in crisis since the slow collapse of second-biggest developer Evergrande began last year. Since then, the toxic fallout from his default on much of his $300 billion debt mountain has begun to ripple throughout the economy.

As the government’s zero-Covid policy continues to cripple activity and property sales continue to struggle, S&P analysts issued a chilling warning on Monday that the writing was now on the wall for property companies facing to bond payments totaling $88 billion before the end of the year. .

“The end of the beginning is near for Chinese developer defaults,” S&P said. “In the first stage, the companies asked investors to swap or extend defaulted bonds, to buy time until the real estate market recovers. In the next stage, we assume that investors will lose patience with such postponements, especially if home sales do not recover quickly.”

If home sales don’t pick up enough, according to S&P, as many as one in five businesses are at risk of going bankrupt.

“Based on our stress tests, at least a fifth of rated Chinese developers could be insolvent. This assumes there is no refinancing and all pre-sold obligations are met.

In a separate note, the rating agency downgraded Henan province-based developer Central China Real Estate to a B-minus rating as sales fell 55% in the first half and household income also fell in the first half. amid ongoing problems caused by successive Covid lockdowns. .

He also noted that “a series of incidents in Henan” had “raised homebuyers’ concerns over the smooth delivery of pre-sold properties amid the industry down cycle,” suggesting a loss of confidence in the industry after hundreds of savers marched outside a bank in Henan in protest. not being able to access their accounts.

Mark Dong, co-founder and managing director of Hong Kong-based Minority Asset Management, said Beijing had the will to resolve the crisis and expected public developers to step in and acquire struggling projects from private peers. heavily indebted, accelerating an industry consolidation. .

The CBIRC had already committed last Thursday to strengthen its coordination with other regulators to “guarantee the delivery of housing”.

The rebound in Chinese banking stocks was also aided by news that China will accelerate the issuance of special local government bonds to help supplement the capital of smaller banks, as part of efforts to reduce risk in the sector.

Another regulatory measure included possible stricter rules regarding escrow accounts where initial payments for homes purchased outside the plan are held. The idea is that this money will be used to complete projects, but there are concerns that in some cases the funds could be diverted elsewhere by the developers to pay off different debts.

With Reuters

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