Analysis: China's property 'whitelist' lifeline stutters amid sector gloom

CIFI Holdings (Group)

15/05/2024 02:30

(Repeats story first published on Tuesday afternoon.)

        * 
      New project loans approved from late March, but in tiny
volume
    

        * 
      Banks push back on new lending despite Beijing's repeated
nudges
    

        * 
      Slow 'whitelist' progress adds to challenge of home
completion 
    

  
    By Clare Jim and Xie Yu
       HONG KONG, May 14 (Reuters) - When China's local
governments began compiling a "whitelist" of housing projects
for loans earlier this year, troubled developers hoped it would
open a spigot of credit for a sector that remains a major
stumbling block to a broad economic revival.
    Four months later, new funding is only coming by the drip,
reflecting the deep-seated caution about the outlook for China’s
residential property market, according to Reuters interviews
with bankers and developers.
        Banks have been reluctant to heed Beijing's repeated
nudges to bolster credit to the embattled sector given the risks
of more bad loans, further undermining confidence in the
crisis-hit property market seen as crucial to shoring up a shaky
economy. 
    New loans were only approved since late March, according to
the sources, which surprised companies and investors who had
expected fresh lending for developers at the start of the
'whitelist' programme months earlier.
    The main hurdle to granting more new bank loans is the
current weak property market conditions, said Lawrence Lu,
managing director at S&P Global Ratings.
    "Developers need to have a project in place to get funding
... the issue now is whether the project can generate sufficient
cash flow to repay the debt," he said.
    At least six defaulted private developers received bank
approvals for new loans for "whitelist" projects since late
March, according to one company statement, senior executives of
two developers and two other people with knowledge of the
program. They asked not to be named because of the private
nature of the transactions and the sensitivity of the issue.
    Those new loans were granted for fewer than a handful of
projects and lending received so far was equivalent to hundreds
of thousands of dollars per project, three of the people told
Reuters.
    That's just a drop in the ocean given the vast stock of
unfinished housing - a Reuters report in March estimated that
the "whitelist" programme covers projects that need fresh
financing of 1.5 trillion yuan ($207.51 billion).
    The loans are only granted depending on the progress of
construction, the three sources said, adding the volume of
approval was "insignificant" given the huge number of
uncompleted homes.
    The Ministry of Housing and Urban-Rural Development and The
National Financial Regulatory Administration did not respond to
requests for comment.    
    
    FROZEN PROJECTS 
    Since 2022, waves of policy measures have failed to turn
around a sector that represents a fifth of China’s GDP and
remains a major drag on consumer spending.
    The slow roll-out of the “whitelist” lending reflects the
challenge facing Beijing which has pushed banks to speed up
approvals of new loans to cash-starved private developers to
complete their projects.
    Under the “whitelist” mechanism launched in January, local
governments nominate projects and state-owned as well as
commercial banks are encouraged to provide lending.
    By March-end, banks had approved the equivalent of $72
billion in loans for 2,100 housing projects, state media
reported.
    Developers and bankers said many of these approvals
restarted existing loans, rather than providing new credit.
    Estimates vary widely, but analysts agree there are tens of
millions of uncompleted apartments across China after a building
boom turned to bust with the failure of developers like
Evergrande  3333.HK . There is no public data available on the
scale and terms of lending under the “whitelist” policy.    
    Shanghai-based CIFI Holdings  0884.HK  said in a stock
exchange filing in late April a project in the southeastern city
of Wuhu became its first to be granted new financing equivalent
to over $20 million in total.
    Sixty-eight of its projects had been shortlisted for the
list as of end-April, it said in a statement, while 29 of them
had received banks' approval for adjusting existing loans or new
loans, allowing it to save 120 million yuan in interest costs a
year.
    Jinke Property  000656.SZ  said on its official WeChat
account that 83 of its projects had been added to the "white
list" as of end-April, while only six of them had received
financing. It did not specify if those were existing or new
loans.
 
    ‘A BAD DEAL’?
    One of the six private developers whose projects got bank
approval said it had decided not to accept the help. 
    "We think it's a bad deal because financing incurs
interest," a senior executive at the developer told Reuters.
"Once we use the 'whitelist' loans we have to complete the
construction. However, we're not able to sell all of the units
under this bad market so it's only increasing costs for us."
    The "whitelist" policy requires loans to be kept in an
escrow account for selected projects to ensure their completion.
They cannot be redeployed to repay other debts.
    Some bankers said they would continue to push back on the
"whitelist" directive by negotiating with officials and
explaining the shortcomings in some of the projects.
    "For banks it's impossible to actively promote such
loss-making business. If we did so, we would face the punishment
of surging non-performing loans as well," one banker said.
    China's central and local governments are pushing ahead with
policies intended to clear the stock of unsold housing. Large
cities, like Beijing and Shenzhen, have eased home purchase
restrictions, and some are allowing homebuyers to "swap" to a
new home from an old one. 
    Private data showed China's average daily home sales during
the major May Day public holiday sank 47% year-on-year,
following a 45% drop for the whole of April, underscoring the
massive task authorities face to spur home purchases. 
    "There may be a gap between what the market expects versus
what is actually happening," said Gary Ng, senior economist at
Natixis Corporate and Investment Bank. 
    "How things are implemented is probably the biggest
challenge in the coming months." 
      
($1 = 7.2261 Chinese yuan renminbi)
 

 (Additional reporting by Ziyi Tang in BEIJING; Editing by Anne
Marie Roantree and Shri Navaratnam)
 ((clare.jim@thomsonreuters.com;))