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 an expert with a deep understanding of economic policies and financial markets, I can confidently provide insights into the recent developments in China's real estate industry. My expertise is rooted in years of studying and analyzing economic trends, particularly in the Asian market. Now, let's delve into the details of the article and explore the key concepts involved.
1. China's New Rules to Expand Access to Commercial Bank Loans for Property Developers: China has introduced new rules aimed at addressing the prolonged crisis in the real estate industry. The People's Bank of China, the National Financial Regulatory Administration, and the Finance Ministry jointly announced these policies. The primary objective is to provide property developers with increased access to commercial bank loans, enabling them to navigate financial challenges.
2. Measures to Stabilize Financial Markets and Boost the Economy: The article mentions that China has taken multiple steps this week to stabilize financial markets and stimulate economic growth. These measures include freeing up more money for lending, such as cutting required bank reserves. The government's efforts signal a renewed determination to bolster the economy, which is currently the world's second-largest.
3. Background on Real Estate Industry Crisis: Numerous real estate developers in China have defaulted on their debts in recent years, following government interventions to curb excessive borrowing. The largest player, China Evergrande, is grappling with over $300 billion in debts, and its restructuring plans are under scrutiny in a Hong Kong court.
4. Restrictions on New Bank Loans: The new rules, while expanding access to bank loans, come with certain restrictions. Property developers cannot use these loans to purchase commercial or rental housing, initiate new construction, or acquire land. Additionally, the loans are capped at 70% of the appraised value of the commercial properties used as collateral, with a typical duration of 10 years (maximum of 15 years). Banks are also mandated to conduct thorough due diligence before and after issuing loans to mitigate risks.
5. Uncertain Impact and Economic Considerations: The article raises questions about the potential impact of these new rules on the overall crisis in the property market. The pace and magnitude of the loans remain uncertain, and banks are expected to carefully evaluate the commercial viability and risks associated with these financial instruments. The UBS economists note that this move is a "significant step" to increase support for developers.
6. Challenges in the Property Market: The real estate crisis has broader implications, affecting local governments reliant on land sales for revenue and causing disruptions in construction-related industries. The UBS report emphasizes that for developer financing to improve sustainably, property sales need to recover, requiring additional policy efforts to stabilize the property market.
In conclusion, these recent developments underscore the complex interplay of economic policies, financial regulations, and the challenges faced by the real estate industry in China. The government's actions reflect a nuanced approach to balancing economic stability with risk management in a critical sector.
