China relaxs home loan restrictions amid liquidity crisis
China is loosening restrictions on home loan at some of its largest banks, according to people familiar with the matter, adding to signs of growing concern by authorities about contagion caused by the debt crisis at China Evergrande Group.
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None What the Front Line of the U.S. Financial regulators told some major banks late last month to accelerate approval of mortgages in the last quarter, said the people, asking not to be identified discussing a private matter. Lenders were also permitted to apply to sell securities backed by residential mortgages to free up loan quotas, easing a ban imposed early this year said the people.
The moves come amid growing alarm that the liquidity crisis at Evergrande is spilling over to other developers as President Xi Jinping maintains tough measures to cool the property market. Fears of contagion risks intensified over the past two weeks after a surprise default by Sinic Holdings Group Co. and a warning from Fantasia Holdings Group Co. that its default was imminent
The People s Bank of China and the China Banking and Insurance Regulatory Commission did not immediately respond to requests for comment.
While the latest move is favorable for developers, it s unlikely to solve their liquidity problems, said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. He said regulators should also loosen policies for project loans and onshore corporate bond markets, given that offshore debt financing is almost shut down at the moment. On Friday, a Bloomberg gauge of Chinese developer stocks trimmed losses. The BI Chinese Real Estate Owners and Developers valuation Peers index was down 1.4% at 12: 25 p.m. local time after falling as much as 2.6% earlier.
China s credit growth slowed in September as weakness in the property market weighed on lending and financing activities despite the central bank s call to stabilize credit expansion.
At a meeting chaired by the Central Bank Governor Yi Gang in late September, authorities told 24 financial institutions to work with governments to strengthen and secure the steady and healthy development of the real estate market and protect the legitimate rights and interests of housing consumers. Beijing has stepped up efforts to control the fallout from the troubled Evergrande, which has led to a drop in sentiment among homebuyers. An estimated 1.6 million households have put deposits on Evergrande properties that have yet to be built.
Combined sales by China Real Estate information corp. fell 36% in September from a year earlier, according to the country s top 100 real estate companies.
Any further easing should depend on if sales could improve significantly from the current weak level, said Patrick Wong, Bloomberg Intelligence analyst. Potential buyers could still feel concerned about purchasing presale units from debt laden developers. The property slump puts pressure on the Chinese economy, along with an energy shortage, weak consumer confidence and soaring raw material costs. Economic growth likely slowed to 5% in the third quarter from 7.9% in the previous three months, according to economists surveyed ahead of government data due Monday.
Based on a managed revamp of Evergrande with some spillover to the rest of the property sector, Citigroup Inc. cut its China growth forecast to 4.9% from 5.5%, according to a note on Wednesday. The pressure on growth will likely trigger further policy easing, including in 2022 a 25 basis point interest rate cut, economists led by Liu Li-Gang wrote.
Easing mortgages could help first time homebuyers with a genuine need and boost transactions after an unprecedented cap on bank exposure to the real estate sector from the beginning of the year dried up loans.
The regulators have also signaled a willingness to defend healthy property companies by demanding banks to refrain from cutting funding all at once to developers, Bloomberg reported last month.
By issuing residential mortgage-backed securities, banks can raise bank loans off their balance sheet and move capital to dole out more. The issuance of RMBS in September hit the highest level this year according to Bloomberg calculations based on data from the China Securitization Analytics website.
That marked a negative change from late April when the central bank started controlling the size of RMBS issuance. The move could help developers reduce cash flow risks, according to Everbright Securities Co.
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