China is stepping up efforts to support loans for developers amid mortgage boycott

A woman walks near a construction site of apartment buildings in Beijing, China July 15, 2022. REUTERS/Thomas Peter

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SHANGHAI/BEJING, July 18 (Reuters) – Chinese regulators stepped up efforts to encourage lenders to lend for qualifying real estate projects as the troubled real estate sector faced new risks from a widening mortgage payment boycott for unfinished homes.

The China Banking and Insurance Regulatory Commission (CBIRC) told the industry’s official newspaper on Sunday that banks should meet the financing needs of developers where appropriate.

The CBIRC expressed confidence that with concerted efforts, “all difficulties and problems will be properly resolved,” China Banking and Insurance News reported.

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The comments come as a growing number of homebuyers across China threatened to stop making mortgage payments on stalled real estate projects, compounding a housing crisis that has already hit the economy. Continue reading

The latest news helped banking and real estate stocks erase some of their recent losses. China’s banking index (.CSI399986), which fell 7% last week to a more than two-year low, rebounded 1.4% on Monday. Chinese real estate shares (.CSI931775) rose 3.1% in the mainland and 3.7% in Hong Kong (.HSMPI).

The rebound in Chinese bank stocks was also helped by news that China will accelerate special local government bond issuance to supplement small banks’ capital, as part of efforts to de-risk the sector. Continue reading

China could also allow homeowners to temporarily suspend mortgage payments on stalled real estate projects without facing penalties, Bloomberg reported after the market close on Monday, citing people familiar with the matter.

The report added that homeowner eligibility and the length of grace periods would be decided by local governments and banks, and the pending proposal from financial regulators would require the approval of senior Chinese executives.

HOPE FOR STABILITY

Official data on Friday showed that real estate sector output contracted 7% year-on-year in the second quarter, marking the fourth straight quarter of decline.

New home loans were expected to exceed 150 billion yuan ($22.23 billion) in June, compared with a decline in May, state television CCTV reported Monday.

“I think the Chinese government has the will and the means to solve the problem and will probably act quickly,” said Mark Dong, co-founder and chief executive of Minority Asset Management in Hong Kong.

“The biggest risk is the impact on consumer confidence, which threatens the incipient recovery in home sales.”

Dong expects state-owned developers to step in and buy troubled projects from heavily indebted private competitors, speeding up industry consolidation.

The CBIRC vowed last Thursday to increase its coordination with other regulators to “guarantee the delivery of houses.” Continue reading

Already more than 200 projects have been affected by the mortgage boycott by homebuyers across the country, and at least 80 developers have been affected so far, the E-house China Research and Development Institution said in a report released on Monday.

E-house estimates real estate projects across China have stalled, accounting for 900 billion yuan in mortgages in the first half, or 1.7% of total mortgage loans outstanding.

In Sunday’s interview, CBIRC urged banks to “take social responsibility” and actively engage in investigating plans to close the funding gap and support acquisitions of real estate projects.

The regulator hoped these moves would help stabilize the housing market by allowing stalled housing construction to resume quickly and homes to be delivered to buyers early.

Mainland real estate stocks rallied strongly in Hong Kong.

Country Garden Holdings Co (2007.HK) is up 6%, Guangzhou R&F Properties (2777.HK) is up 9% and KWG Group Holdings (1813.HK) is up nearly 11%.

($1 = 6.7475 Chinese Yuan)

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Reporting by the newsrooms in Beijing and Shanghai; Additional reporting by Clare Jim in Hong Kong; Edited by Hugh Lawson, Shri Navaratnam and Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.

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