Chinese lenders told to get tough on housing developers

CHINA’S BANKING regulator told lenders to push developers for faster home sales, citing signs that credit quality is worsening, a source has said.

The China Banking Regulatory Commission told lenders they should also demand more collateral, or tell developers to sell projects or stakes, if the banks predict they will have difficulty repaying loans due within 12 months, the source said, asking not to be identified because the instructions aren’t public. Mortgages and developer loans classified as “special-mention”, or those at risk of souring, started to rise recently.

According to the source, the commission told lenders that lack of funding, high leverage and a peak of loans maturing have increased the risk that some developers’ financing chains may collapse.

Developers are facing “significant liquidity issues”, KPMG LLP said last month. Housing sales by area dropped 7.5 per cent in the first seven months as the government enforced restrictions to stem speculation, which Premier Wen Jiabao said, will remain in place to keep property affordable.

“We can’t rule out the possibility that very small developers may get into trouble if policy becomes unexpectedly tight, but the regional bellwethers and listed companies should be okay,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Company.

“Sales will most likely rise at a stable pace” in the rest of the year.

A press official for the Beijing-based regulator declined to comment. A gauge tracking Shanghai-listed property shares tumbled 0.7 per cent yesterday.

China Vanke Co, the nation’s biggest publicly traded developer, fell 1.3 per cent in Shenzhen to 8.53 yuan, after rising as much as 0.7 per cent.

Lenders were also told at the end of last month they should enhance monitoring of developers’ cash flows, the source said.

The CBRC also warned that risks may be obscured because some real estate firms obtained funding through personal loans or borrowing by affiliated businesses after bank credit tightened, the source said.

The regulator, according to the source, told banks that risks in lending to local government financing vehicles (LGFVs) remain prominent. A small number of lenders’ outstanding loans to LGFVs rose this year, violating a CBRC requirement, while some banks continued granting credit to borrowers they had disqualified.

Moody’s Investors Service estimated in May that 29 Chinese developers on its rating list, including Hopson Development Holdings Ltd, Greentown, China Holdings Ltd and Shanghai Zendai Property Ltd, needed to repay 159 billion yuan (€20.3 billion) of short-term debt this year, the most in data going back to 2008.

Greentown, a developer based in the eastern Chinese city of Hangzhou, in June agreed to sell stakes in nine projects for 3.37 billion yuan to Sunac China Holdings Ltd to help repay loans and boost capital. – (Bloomberg)