China's property financing support to promote healthier development of the sector

Editor's note: Mi Yang is the head of office research for JLL China and Ji Ming is a director of JLL's China research team. The article reflects the authors' opinions and not necessarily the views of CGTN. 

In January, China announced a new support measure on financing the property sector, which required city-level government to launch local-specific property financing coordination mechanisms to ensure better support for cash-strapped housing projects. Based on the new measure, city authorities started to generate 'whitelists' of home projects, and to recommend them to commercial banks as suitable for financing support.

We expect the launch of the whitelist of loans for housing projects to ease financing strains among selected developers and ramp up liquidity for eligible property projects. Cities across China are required to make timely efforts to establish the financing coordination mechanism for the property sector and ensure high operational efficiency. Meanwhile, banks are urged to review and evaluate the whitelists promptly, expedite credit issuance, and meet as many reasonable funding needs as possible.

By February 20, a total of 214 cities from 29 provinces had established property financing coordination mechanisms and had proposed 5,349 residential projects to banks. As a result, a total of 29.43 billion yuan ($4 billion) of loans had been issued to 162 such projects in 57 cities, up a significant 64.8 percent compared with end-January (17.86 billion yuan). In our opinion, the quick rollout of the whitelist and financing coordination mechanism shows China's determination to inject liquidity into the property sector and boost confidence.

Specifically, the whitelist aims at residential projects that require funding support, rather than developers and real estate enterprises. This is expected to better meet the reasonable financing needs of projects, ensure the construction and completion of homes, as well as pave the way for a virtuous cycle of the finance sector and the property sector, to stabilize and restore market confidence. As such, the mechanism represents targeted easing and support to healthy and qualified housing projects that suffered from short-term challenges, and is designed to expedite issuance of such selected project loans.

Going forward, city governments are anticipated to maintain a balance between efficiency and risk control. Authorities are pressing ahead to verify that loans granted are used only for pledged project development and completion, while preventing any funding to be used for land purchases, debt repayment or other investment activities. Rapid rollout and effective implementation of the mechanism will further promote the stable growth and sustainable development of the property sector.

China's real estate industry continues to face sentiment issues and liquidity challenges, as the economy shifts to a more consumption-led model. Amid the transition, China has to deal with cyclical and structural adjustment pressures, which requires the authorities to further provide effective policy support from the demand side to the supply side, from sales to investment. Such efforts are expected to accelerate and smooth the path to a more sustainable property sector in China.

Over the past several months, a series of support measures aimed at reviving the property sector were announced. On the residential side, China recently announced to cut the 5-year loan prime rate by a significant and record 25 basis points, which signals authorities' determination on targeted easing and support for the housing market.

As for the commercial real estate sector, China released new measures to broaden commercial property loan uses to ease liquidity. By end-2024, banks will be able to provide commercial property loans to qualified developers to allow them to repay debts that are not necessarily related to the commercial assets as collateral. The move was considered a significant step to increase financial support for quality and compliant developers, and to revive market confidence.

(Cover via CFP)