Chinese developers say funding woes, local govt caution undermine pledges of support

FILE PHOTO: Buildings developed by China Evergrande Group on the man-made Ocean Flower Island in Danzhou
FILE PHOTO: An aerial view shows the 39 buildings developed by China Evergrande Group that authorities have issued demolition order on, on the man-made Ocean Flower Island in Danzhou, Hainan province, China January 6, 2022. REUTERS/Aly Song

March 31, 2022

By Clare Jim

HONG KONG (Reuters) – China’s pledges to shore up its embattled property industry have done little to boost prospects for the sector, according to developers, with access to funding still challenging and many local government authorities reluctant to ease rules more effectively.

The world’s second-largest economy needs more decisive policy easing at the city level to stimulate demand from wary buyers and inject new credit to stop more property-related firms from defaulting, executives at top developers said.

Beijing has repeatedly signalled more government support for the sector after bond payment defaults by China Evergrande Group and others rattled global markets and weighed on the economy.

As part of those efforts, China’s central bank has said financial institutions need to extend real estate loans steadily under prudent management to meet the “reasonable” funding needs of the sector.

But executives at five developers, all among China’s top 50 by sales, told Reuters they have not been able to get new loans from banks.

The developers said they can now only use cash from sales, which has been diminishing, for building new projects.

Logan Group told investors earlier this month its bank credit has shrunk since January, with over 10 billion yuan ($1.6 billion) of approved bank loans yet to be released, according to a memo seen by Reuters.

The Shenzhen-based developer, which is negotiating payment extensions with creditors, did not respond to Reuters request for comment.

An executive of a state-owned bank said guidelines from headquarters was to accelerate the approval of mortgage loans, but stay cautious on private property developers.

“The negative news headlines of developers failing to meet payment obligations keeps ringing alarms … so far we are mindful to focus on state-owned developers only.”

All the representatives of developers and banks declined to be named due to sensitivity of the matter.


Property investments in China bounced slightly over the first two months of 2022, rising 3.7%, while new construction starts measured by floor area fell 12.2%.

Overall, home demand remained weak with property sales by floor area down 9.6% during the same period.

“Little coherence” between central authorities and local governments on easing measures was also denting hopes of a quick revival, said the chief financial offer of a developer that has struggled to repay its offshore debt.

“Every city has different policies, different departments are trying to figure out how much they can implement, and the effectiveness is low,” said the executive at the firm based in eastern China.

Beijing drafted a new nationwide policy this year for pre-sale funds developers need to keep in escrow accounts for project completion. The aim was to correct some local government’s over-tightening of the fund withdrawal rules last year.

But decisions on how much developers need to keep in escrow accounts is still in the hands of city-level officials, many of whom remained cautious, said the property firm executives.

Logan said it had 18 billion yuan in the escrow accounts. Evergrande, whose $20 billion offshore debt is deemed in default, said in early February it had 50 billion yuan in the accounts.

China’s stimulus measures have been mainly focused on boosting home demand, including cutting down-payments for first-time buyers, reducing mortgage rates, and subsidies.

Some provincial governments have refrained from rolling out more decisive measures as they struggle to gauge how far they can go without contradicting the central directive that “houses are not for speculation”, analysts said.

Zhengzhou, a major second-tier city, however, relaxed purchase curbs on second homes on March 1, the first city in the country to do so. A couple more cities have followed that lead.

“Zhengzhou could be a turning point,” Beike Research Institute senior analyst Tang Xuan said, anticipating a sales recovery by mid-year. “We expect cities with high inventory will roll out more easing going forward, and Beijing will consent to that.”

($1 = 6.3590 Chinese yuan renminbi)

(Additional reporting by Xie Yu in Hong Kong, Zoey Zhang and Engen Tham in Shanghai; Editing by Sumeet Chatterjee and Lincoln Feast.)