Chinese regulators ease some real estate controls

Chinese regulators are easing some restrictions on bond sales by real estate firms and developers, though they aren’t pulling back entirely.

The goal: limit credit to overleveraged borrowers without cutting off loans entirely, the Financial Times reported, citing Zou Lan, head of financial markets at the People’s Bank of China.

“We have instructed major banks to keep real estate loan issuance steady and orderly,” Zou said.
Chinese developers have borrowed so much money in the last few years that regulators worry that a credit crisis could drag down the economy as a whole.. By some estimates, a third of all economic activity in China is related to real estate, the FT said.
In January, the People’s Bank of China began limiting loans to developers and homebuyers.

But the government has focused mostly on reeling in developers. In August, the government forbade private equity funds from investing in residential development, cutting off a major source of cash.
Evergrande has been the poster child for the property sector’s debt crisis. Many believe the government will allow it to go bankrupt. Other companies are also facing liquidity issues.

The mortgage lending market has also opened up. Lending increased 1 percent year-over-year last month, the first gain in four months. The time to review a mortgage has also halved to less than three months from about six months in September.

Buyers are holding back, however, as prices sank in recent months and buyers expect them to fall further. That could be a challenge for developers.
Either way, regulators aren’t ready to go hands off just yet, one Beijing-based policy advisor said.

“All of our previous attempts to regulate the real estate market have failed because we exited halfway through overhauls,” the advisor said. “This time, the central government is determined to stick to the plan.”

[FT] — Dennis Lynch