China targets $148 bn in financing for cash-strapped developers: Report

China will help property developers by issuing 1 trillion yuan ($148.2 billion) in loans for stalled developments, the Financial Times said on Thursday, as Beijing tries to revive the debt-stricken sector and relieve pressure on the economy.

Once a key pillar of growth, China’s property sector has been lurching from one crisis to another for the past year. A growing mortgage revolt by homebuyers this month has put more pressure on authorities to act quickly to quell any social unrest.

The People’s Bank of China (PBOC) will initially issue about 200 billion yuan of low-interest loans, charging about 1.75 per cent a year, to state commercial banks, the FT said, citing people involved in the discussions.

The plan, recently approved by China’s State Council, will permit banks to use the PBOC loans along with their own funds to refinance stalled real estate projects, the report added. Part of the fund will be used to bankroll the purchases of unfinished home projects and complete their construction, and then rent them as part of the government’s drive to boost rental housing, a bank official said.

China will try hard to achieve the best possible results for the economy this year, state media said on Thursday after a high-level meeting of the ruling Communist Party, dropping previous calls that it will strive to meet its 2022 growth target.

In the second half, China should “stabilise employment and prices, maintain economic operations within a reasonable range, and strive to achieve the best possible results,” Xinhua news agency reported, after the 25-member Politburo chaired by President Xi Jinping met to assess the economy. 

However, property developers and analysts said even one trillion yuan in new financing will not be sufficient to resolve the sector’s debt mess. China Evergrande Group alone has more than $300 billion in debt and is expected to announce a restructuring plan this week.

Beijing is scrambling to reassure homebuyers who are threatening to stop paying mortgages on unfinished projects, which is spurring a shakeout among cash-starved developers who have long relied on pre-sales of apartments. Private developers account for around 70 per cent of the market, and at least half of them have run into liquidity issues, according to analysts.

The mortgage boycott has also hit banking stocks, as investors fear lenders could face hefty write-downs. Up to 1.5 trillion yuan ($220 billion) of mortgage loans are linked to unfinished residential projects, ANZ estimated in a report.

While new funding schemes led by the government will help to boost market sentiment, analysts said more action will be needed.

Markets had hoped for more property support announcements this week after a meeting of the Politburo, a high-level body of the ruling Communist Party. But its statements on the sector released on Thursday by state media were brief, promising to stabilise the market and ensure delivery of homes.

China’s property investment fell 5.4 per cent from a year earlier in the first half of the year, while property sales by floor area slumped 22.2 per cent and new construction starts fell 34.4 per cent, official data showed

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Distressed Chinese developer Shimao Group Holdings and four units have been sued by United Overseas Bank in Hong Kong. UOB alleged that Shimao and the group entities breached terms of certain loan and security deals, by purportedly re-allocating loans and allotting shares between the entities without the bank’s consent.