Property risks tolerable with smarter financing

China is capable of preventing risks in its real estate sector from spreading to its financial system, and will meet the appropriate financing needs of property developers under all types of ownership as equals, the central bank said on Wednesday.

China’s property market is going through significant upheaval as it looks to return to stability following over 20 years of sustained growth. The shifting dynamics indeed present some challenges, but meanwhile, they bode well for new opportunities, said Pan Gongsheng, governor of the People’s Bank of China.

Over the years, the development of certain property companies has long been based on high debt, high leverage and high turnover, resulting in rapid expansion of both their assets and liabilities, Pan said at the opening ceremony of the Annual Conference of Financial Street Forum 2023 in Beijing.

Major changes in the relation between market supply and demand, as well as the impact brought on by the COVID-19 pandemic, have shone a light on the risks facing such developers — including Evergrande Group — and the risks are now spreading across the whole sector, Pan added.

So far, real estate-related loans account for 23 percent of the outstanding balance of all bank loans, of which about 80 percent are personal home loans, Pan said, stressing that the country has always pursued a very prudent policy in granting personal home loans.

By and large, the negative impact induced by property sector adjustments on the financial system is under control. With the economy showing signs of improvement, coupled with the effects of real estate policies and market recovery, there has been an overall improvement in housing sales since August, Pan said.

The PBOC will actively cooperate with competent departments and local governments to provide necessary financial support for the stable and sound development of the real estate sector, mitigate relevant risks and keep such risks from spilling over into other sectors, Pan said.

The State-owned Assets Supervision and Administration Commission of the Shenzhen Municipal Government said on Monday that it has full confidence, as well as sufficient funds and tools, to help China Vanke — one of the nation’s top property developers — if it faces extreme conditions.

Noting that China’s urbanization is still in its early stages with a sizable influx of new urban residents still occurring, Pan said there remains huge potential to tap into in terms of meeting people’s basic housing needs and their desire to improve living conditions.

Going forward, financial institutions will be guided to streamline key financing channels for real estate credit, and meet the reasonable financing needs of property developers under various types of ownership on an equal footing, Pan said.

A day before Pan’s speech, the PBOC, along with Ministry of Housing and Urban-Rural Development, National Financial Regulatory Administration and China Securities Regulatory Commission, held a symposium with some developers to learn about their financial conditions and financing needs, National Business Daily reported.

That said, industry analysts cautioned against over-optimism related to rapid improvements in the financing environment for developers in the near term.

Since the beginning of the year, capital raised by property developers has been declining. As lackluster housing sales will probably continue in near future, financing among property firms still faces difficulties and will remain at a modest level, said Liu Shui, director of research at the China Index Academy.