China plans $29 billion in special loans to struggling developers: report

China will offer 200 billion yuan ($29.3 billion) in special loans to ensure stalled housing projects are delivered to buyers, people familiar with the matter said, increasing financial support for its beleaguered property sector.

The previously undeclared size of the loan program, which was announced with scant detail by China’s Ministry of Housing, Ministry of Finance and central bank on Friday evening, would make it Beijing’s largest financial commitment yet to contain a real estate crisis that has seen house prices plummet and real estate sales plummet.

Hundreds of thousands of middle-class Chinese have been caught in limbo after making down payments and taking out loans on properties that cash-strapped developers are now struggling to complete. Some homebuyers have begun boycotting mortgage payments, a threat to social stability during the politically sensitive period ahead of the Communist Party leadership transition later this year.

The People’s Bank of China and the Ministry of Finance will channel the money through political banks such as the China Development Bank and the Agricultural Development Bank of China, said the people, who asked not to be identified. discussing private information. Special loans will only be used for homes that have already been sold but not yet completed.

The PBOC, Department of Finance and Department of Housing did not immediately respond to requests for comment.

“We view the central government’s introduction of bailout funding as the first significantly positive development in the past five to six weeks,” Jizhou Dong and Stella Guo, analysts at Nomura Holdings Inc., said in a note on Sunday. . They expected the financing to reach at least 200 billion yuan to 300 billion yuan as the initial investment to be effective.

Urged to increase overall lending to support the country’s flagging economy, Chinese banks cut their benchmark policy rates for the second time since May 20. This came after the central bank unexpectedly lowered its key rate last week to support growth.

The rate cuts were the latest in a series of measures designed to help the real estate sector as the liquidity crisis exacerbates the slowdown in the world’s second-largest economy. China is on the verge of missing its growth target of around 5.5% this year and youth unemployment is at a record 20%.

Earlier this year, China allowed banks and bad debt managers to ease restrictions on some loans to ease a cash crunch. In April, the central bank hosted a meeting with about 20 major banks and asset management firms to help resolve the crises of a dozen major property companies, including China Evergrande Group. Local authorities have offered a variety of housing incentives, including reducing down payment requirements and even encouraging families with more children to own multiple properties.

However, China’s relentless pursuit of Covid zero, including recurring lockdowns, and a rise in bad debts have shaken confidence and made banks reluctant to lend. Bank lending to the real estate sector fell for the first time in 10 years, and the decline could continue, according to Bloomberg Intelligence analyst Kristy Hung.

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