Chinese property developers’ fundraising slumped at the fastest pace this year in October, even after the government urged financial institutions to meet the real estate sector’s reasonable funding needs.
Property developers raised a total 36.5 billion yuan of funding in October, slumping 74.8% from a year earlier and falling by 60% from the previous month, both the fastest drops this year, according to data from the China Index Academy, one of the country’s largest independent real estate research companies.
For the first ten months of the year, property developers raised a total of 1.56 trillion yuan of funding, sliding 21.2% from the same period lat year, showed the data. That means fundraising in October only accounted for 2.3% of the total amount for the first ten months of the year.
The sector’s fundraising has been slumping since the third quarter, with the monthly amount in July, August and September at 207.6 billion yuan, 117.3 billion yuan and 91.2 billion yuan, respectively, showed the data.
Their fundraising through all channels declined, showed the data. That from onshore corporate bond issuance fell 55.2% year over year last month, down 60.4% from a month earlier. Funding from overseas bond issuance tumbled 77.1% year over year, down 68.3% from the prior month. Funding from trust funds fell 66.7% from a year earlier, down 52.6% month on month. That from asset-backed securities has literally halted for more than two months.
“The downward cycle in the real estate sector and exposure of risks in certain property developers have turning financial institutions more cautious towards investment in the sector,” according to the academy’s report. Although financial policies for the sector is fine-tuning, it may take a while for the policy relaxation to be transmitted to the market, it said.
Zou Lan, an official with the People’s Bank of China (PBOC), said at a press briefing on October 15 that some banks misunderstood the central bank’s much-vaunted “three red lines” – financial requirements that decide whether developers can borrow – and that had led to liquidity stress for some developers.
“The central bank and the China Banking and Insurance Regulatory Commission (CBIRC) convened a meeting at the end of September, asking major banks to accurately implement the government rules to keep orderly lending to the property sector and safeguard its stable development,” he said.
Five days later, China’s Vice Premier Liu He said that the real estate sector’s reasonable financing needs were being met.
However, banks are still cautious about lending to property developers.
“When the real estate sector is in an uptrend, we provide loans to developers based on our judgement on the sector and individual companies. But now, everyone has realized the housing market is in a downtrend and even developers we thought had sound fundamentals have started posing risks. No one want to take the risks,” said a corporate loan executive at a Guangzhou-based commercial bank.
An executive at a state-owned bank said that “many banks now only lend to state-owned companies, as risks at private companies are too high.”
After the central banks told banks to maintain real estate lending stable, only home mortgage loans increased, he said.
Data released by the PBOC on Wednesday showed that new home mortgage loans reached 348.1 billion yuan in October, rising by 101.3 billion yuan from the previous month.
The pick-up in home mortgage loans will help ease pressure on developers’ cash flow, but it doesn’t mean the overall financing environment for the sector is improving.
According to Zhixin Investment Research Institute, China’s outstanding real estate development loans accounted for 6.6% of financing institutions’ total outstanding loan, the lowest on record and down from 7.6% at the end of the first quarter in 2019.
“While developers now accept higher borrowing costs, most financial institutions are not willing to take the higher risks, in particular state-backed financial institutions,” said a trust industry insider. “The key problem is everyone is losing confidence in the real estate sector.”
Public information showed that, since October 15, China’s real restate industry associations, a unit of the top economic planner NDRC, a unit of the foreign exchange administration, think tank under the State Council as well as China’s interbank regulator have held several meetings focusing on property developers’ financing.
“Four meetings on the national level within one month. This is very rare,” said the China Index Academy. Going forward, improving real estate financing will be the focus for the authority’s real estate policy fine-tuning, it said.