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A flagship Beijing lending programme to revive the country’s debt-stricken property market has done barely any business almost a year after its launch, officials said, highlighting the difficulty for policymakers seeking to boost confidence in the world’s second-largest economy.
The People’s Bank of China in November announced a Rmb200bn ($27bn) facility to provide interest-free loans to six state-owned commercial banks to finance thousands of stalled property projects across the country.
But almost a year after the programme was launched, less than 1 per cent of the funds have been disbursed to banks, which were supposed to match the PBoC loans with their own lending but have been unwilling to issue further debt to the ailing sector, according to former PBoC and current banking officials familiar with the situation.
“For Chinese banks, the downside of lending to distressed property projects far outweighs the upside,” said Larry Hu, chief China economist at Macquarie.
The failure of the central bank’s signature initiative to resolve the problem of unfinished homes illustrates the complexity of trying to design measures to revive China’s property sector, which accounts for more than a quarter of the country’s economic activity.
Plunging sales and mounting liabilities have forced many cash-strapped developers to suspend construction, leaving housing projects in limbo. Elmlead, a Shanghai-based real estate information provider, estimated that almost 2,000 projects nationwide worth a combined Rmb6tn had been suspended at the beginning of this year by developers that defaulted on bond payments.
Tens of thousands of frustrated homebuyers, who often begin paying mortgages before properties are completed, have launched boycotts, while construction delays have deterred new buyers from entering the market.
Economists said boosting the sector was critical to putting a floor under weak consumer demand in the economy, which has also been hit by a plunge in exports and flagging industrial production.
China’s State Council, the cabinet, in July highlighted “ensuring the delivery of [unfinished] apartments” as a policy priority. Chen Chuandong, director of the Hefei Housing Bureau in China’s eastern Anhui province, said in a speech this year that completing stalled apartments was a “political task” that developers and banks should treat as a “top priority”.
Policymakers have unveiled a series of measures, led by the PBoC-backed bailout fund and low-interest loans from policy banks, targeted at restarting construction, while large cities have cut minimum mortgage rates and downpayments to spur demand.
The central bank, which launched the bailout fund in November, initially planned to charge commercial banks 1.75 per cent interest before later cutting rates to zero to incentivise their participation.
But state-owned banks — which must lend double the amount of the central bank’s contribution to qualify for the funds — have not taken it up. Official data showed the value of outstanding loans issued through the Rmb200bn scheme was just Rmb500mn in June. Two people close to the central bank said the figure had not changed significantly since then.
One significant hurdle has been finding suitable recipients for the funds. Many developers could struggle to generate cash from unfinished projects to repay loans as their properties are pre-sold or have already been pledged to existing creditors.
“This [bailout fund] project is set to fail due to a lack of sources of debt repayment,” said an official at China Development Bank.
China Construction Bank, the country’s largest mortgage lender, has worked closely with CDB to provide property rescue loans. It became the first lender in eastern Shandong province to tap the fund in June, issuing an Rmb100mn matched loan in a region with more than 300 delayed residential projects. An official at CCB’s Shandong branch said no other bank had shown interest because of the risks.
“Qualified projects are very difficult to come by,” said the official.
In a report published last month, the PBoC said the fund would continue operating through May, adding that it would “encourage and guide” financial institutions to provide funding for stalled projects.
But analysts expressed scepticism about its prospects.
The PBoC “wanted to show that they had done their best even though the program wouldn’t work in practice”, said a former official with the central bank.
The PBoC, China Development Bank and China Construction Bank did not immediately respond to a request for comment.