China’s real estate developers are borrowing more to finance their cash-strapped operations after the green light from financial authorities and the central bank opened the floodgates to financing, a sign that confidence in the beleaguered industry is improving.
Bond financing in the real estate sector rose for the second month of October, up 3.2 percent from last year, to 29 billion yuan ($3.92 billion), according to data released Tuesday by the China Index Academy.
The growth was partly due to last year’s low base, the research institute said, as October results were down 32.4 percent from the previous month. From January to October, bond financing in the real estate sector totaled 442 billion yuan, down 25.6 percent from the same period last year.
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“The favorable policy environment has generally had a positive impact on developers’ financing,” said Yan Yuejin, vice president of Shanghai-based E-House China Real Estate Research Institute. “This year’s measures to reduce financing costs, including reductions in reserve requirements and initiatives encouraging banks to support developers, have helped corporate financing to some extent.”
The latest figures followed a series of stimulus measures launched by Beijing since late September to rescue the property sector and boost investor confidence in the world’s second-largest economy. These policies included cuts to down payments, mortgages, and an expanded whitelist that made developers eligible for additional loans.
China’s legislative body, the Standing Committee of the National People’s Congress (NPC), is holding a five-day session this week and is expected to discuss a larger budget package to further stimulate the economy.
All bonds issued in October were from state-backed housebuilders, due to their better liquidity conditions and lower default risks, while private developers issued none, the report said.
China Resources Land, Poly Development and China Communications Construction Company were among the most active state-backed developers issuing bonds or unsecured loans. These three companies collectively issued 8 billion yuan of bonds, driving loan growth for the month.
The average interest rate for developer bond financing was 2.98 percent, down 0.51 percentage points from last year and 0.08 percentage points from September.
In another sign of improving sentiments, new home sales by the country’s 100 largest homebuilders rose 7.1 percent in October from last year to 435.5 billion yuan. The figure also reflects a 73 percent increase from September, according to data published last week by the China Real Estate Information Corporation.
However, the sector is far from out of trouble. Prices for new homes fell 6.1 percent in September in 70 major cities from a year earlier – the steepest decline since May 2015. Meanwhile, land purchases by the country’s 100 largest homebuilders fell by 38.7 percent to 619.8 billion yuan. Cash-strapped developers remain reluctant to launch new projects.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice covering China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit the SCMP Facebook page Tweet pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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