Beijing Urging Banks to Expedite Real Estate Loans

Expediting Loan Approvals for Chinese Property Developers: A Dangerous Game Amid Real Estate Slump

Beijing officials are urging Chinese banks to speed up loan approvals for property developers who are facing a prolonged downturn. This is due to concerns of an impending “Lehman moment” resulting from the real estate slump in China. Home prices have been declining for eight consecutive months as property values continue to drop, homebuyer sentiment decreases and construction projects remain unfinished.

To support struggling developers, the authorities have introduced a “whitelist” mechanism. The program, launched last week, covers both state-backed construction companies and private developers seeking new financing totaling 1.5 trillion yuan. Under this program, city governments can recommend residential property development projects to banks for financial support. However, there are fears that rushing loan approvals could lead to lower loan quality.

The officials hope that by expediting loan approvals for residential construction, they will revitalize the real estate market. Many Chinese banks have been reluctant to increase credit exposure to the struggling property market, which has limited hopes for a real estate rebound and capped economic growth. The weakening consumer sentiment and growth outlooks have also impacted loan demand and business operations for banks in China. According to Reuters, majorities of the top five state-backed lenders will report lower net income for the full-year 2023, reflecting the overall slowdown in the banking sector.

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