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China Real Estate Reform Likely to Boost Mortgage Demand

The government has eased mortgage costs through interest rate cuts, relaxed some rules on ownership of second homes and urged banks to lend more to buyers


Beijing will help Chinese developers by issuing 1 trillion yuan ($148.2 billion) in loans for stalled projects, the Financial Times reported on Thursday.
The People's Bank of China will initially issue about 200 billion yuan of low-interest loans, charging about 1.75% a year, to state commercial banks. This file photo shows an Evergrande housing complex in Huaian, Jiangsu province, by Reuters.

 

China’s easing of real estate regulations to help homebuyers and developers is likely to accelerate demand for mortgages, according to S&P Market Intelligence.

The government has eased mortgage costs through interest rate cuts, relaxed some rules on ownership of second homes and urged banks to lend more to buyers.

“The rebound will likely be modest and offer a limited boost to overall lending,” S&P warned, however.

Many homebuyers may pause purchases because of doubts over the financial health of developers, analysts said.

“Policy easing so far has been concentrating on the demand side and little has been done about the over supervision on the supply side,” said S&P Global Ratings credit analyst Esther Liu.

 

Reviving Loan Demand

The recent measures are aimed at reviving housing loan demand but restricting real estate companies from taking on more debt.

The S&P Market Intelligence report comes amid mixed fortunes for China’s struggling developers.

This week, Seazen Group announced it would issue $100 million of green notes, the first new offshore bond issuance by a Chinese developer this year.

But Fitch Ratings said on Thursday it would withdraw its rating on embattled property company China Evergrande Group and two of its subsidiaries.

A recovery in home sales is critical for restoring cash flow for developers, the S&P unit said.

“The government has so far not eased funding access for developers because that could increase credit risk for the financial system and undo previous efforts to unwind excessive borrowings of the property sector,” it added.

 

  • George Russell, with Reuters

 

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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

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