China encourages banks to help the property market and homebuyers

Regulators asked financial institutions to refrain from cutting off funding to developers all at once  

Due to concerns about fallout from the China Evergrande Group debt crisis, China has encouraged banks to help local governments ease mortgages for some homebuyers and stabilise the rapidly cooling housing market, reported The Straits Times.  

According to a statement by the People’s Bank of China (PBOC), authorities told financial institutions to collaborate with governments “to jointly maintain the steady and healthy development of the real estate market and safeguard the legitimate rights and interests of housing consumers.”  

Attended by officials from the country’s banking and securities regulators, the housing ministry, and executives from 24 banks, the meeting called upon “accurately grasping and enforcing the prudential management system of real estate finance around the goal of ‘stablising land prices, house prices, and expectations”, said the PBOC.  

Regulators also asked banks to hold back from terminating funding to developers all at once. Lenders should sustain their support for ongoing projects and approve mortgages for homebuyers that are qualified for pre-sales.  

Yeap Jun Rong, market strategist at IG Asia, said, “The meeting reinforces an ongoing step by the Chinese authorities to address the potential contagion risks brought about by Evergrande.” 

“While tightening of regulations may remain, the recent meeting may suggest intentions for a more controlled improvement in credit, potentially improving some capital flows to China’s developers.” 

It is estimated that Chinese banks have around CNY50.8 trillion (USD7.8 trillion) of outstanding loans to developers and homebuyers.  

Moreover, shares of most Chinese developers rallied in Hong Kong and mainland markets.  

Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities, said, “We think it’s definitely good for developers given that developers in the past 12 months have found it very difficult on the financing side.”  

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The latest PBOC meeting suggests that authorities might consider a “marginal adjustment” of real estate credit policy to help those with real needs for housing get loans.  

The PBOC also repeated that it will not use the real estate market as a tool to boost the economy for short-term growth and hold to its principle that “housing is for living, not for speculation.”