China Picks 50 Developers For $138 Billion Gambit To Stem Real Estate Crisis

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by Tyler Durden
Wednesday, Nov 22, 2023 - 03:05 AM

On Sunday we noted that Beijing would be employing several schemes to try and put a floor under its spiraling property crisis - chief among them, providing at least 1 trillion yuan (US$137 billion) in low-cost financing to renovate urban villages and build new, affordable housing (which, according to Bloomberg's Ye Xie, George Lei and Henry Ren, might not be enough).

Photo: Bloomberg

Beijing announced the two-pronged approach over the past few weeks, which have top-level political backing for financing equivalent to approximately 10% of annual new home sales in what Bloomberg described as the "Singapore" model.

Singapore, while a mecca of private-sector business and financial activity, is renowned for a residential market that’s dominated by public housing. If China’s new plan works, officials might be able to both end a nearly three-year slump in property construction and meet President Xi Jinping’s aims to promote “common prosperity.”

The plan is more of a longer-term structural adjustment in the property sector toward a Singaporean model,” said Betty Wang, senior economist at Australia & New Zealand Banking Group in Hong Kong. “I don’t think it’s just a short-term effort to boost property investment — instead, it’s about China’s 2035 common prosperity goals.”

50 developers

Now, Bloomberg reports that Chinese regulators are quickly moving forward with the two projects - and have drafted a list of 50 developers eligible for a range of financing, according to people familiar with the matter. The list comprises both private and state-owned developers, who will vie for support from financial institutions loans, debt, and equity financing.

The yet-to-be-finalized list would expand on previous rosters created by banks that only focused on some “systemically important” state-backed firms. It underscores Beijing’s growing concerns about the sector following record defaults, a swathe of unfinished apartments and a deep contraction in real estate investment that threatens to derail growth in the world’s second-largest economy.

Some Chinese builders’ dollar bonds rallied after the report. Vanke’s 3.5% note due 2029 climbed 3.9 cents on the dollar, set for the biggest jump in two weeks, according to data compiled by Bloomberg. Longfor’s 3.85% note due 2032 rose 3.2 cents, while Seazen’s 4.8% bond due 2024 climbed 2.2 cents. -Bloomberg

According to a recent statement from Beijing, China's largest banks, brokerages and distressed asset managers were told during a Friday gathering to meet all "reasonable" funding needs from property developers, and to "treat private and state-owned developers the same" when it comes to lending. Regulators were also asked at the event to ensure that loan issuance to private builders doesn't outpace the industry average rate, given that China's outstanding property loans fell for the first time on an annual bases in Q3.

China has attempted several previous schemes to mitigate its housing crisis, which is putting a serious drag on the economy despite other indicators such as industrial production marking improvement in recent months. The real estate industry, on the other hand, contracted 2.7% in Q3, the largest drop this year.

"The results so far are disappointing, because these measures mainly focus on boosting demand but overlook the supply side, namely, the financing needs of developers," according to Macquarie Group Ltd. economists led by Larry Hu wrote in a Nov. 17 note. "A key thing to watch is whether and when policymakers would take bolder actions."