China's Real Estate Market Gains Momentum... More Loans to Be Released

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[Asia Economy Beijing=Special Correspondent Kim Hyun-jung] As the real estate market, which accounts for about 30% of China's economy, has been experiencing a prolonged slump for over a year, local financial authorities are intensifying efforts to ease loan regulations. This is interpreted as an attempt to prevent insolvency in the real estate sector and revitalize the market amid the prolonged COVID-19 pandemic, which has delayed the normalization of economic activities.

According to local economic media Caixin on the 13th, the People's Bank of China and the China Banking and Insurance Regulatory Commission jointly announced the "Notice on Supporting the Stable and Healthy Development of the Real Estate Market" on the 11th. According to the notice, real estate developers can extend the repayment deadlines of loans due within six months by an additional year. The measures also include easing the cap on bank real estate loans, which had been in place since last year, to improve liquidity flow.

Furthermore, the previous policy requiring credit enhancement and asset collateral for loan extensions has been changed, allowing financial institutions to extend deadlines without adjustments. A developer official told Caixin, "Banks have been reluctant to extend loans after conducting their own assessments, especially as loan sizes have increased across multiple projects." He added, "Most of the project inventory debts held by venture capitalists have difficulty providing sufficient collateral, leading to a tug-of-war between the industry and financial institutions."

Caixin interpreted, "From the second quarter of this year, the second and third maturities of bonds have arrived, putting financial pressure on companies," and described the authorities' notice as a kind of structural signal. The media also quoted an industry insider saying, "This reflects a change in the regulatory authorities' stance," and explained, "This new cash flow can be maintained for at least six months to a year, and future improvements in housing sales depend on this."

Additionally, the notice requires banks to provide additional funds to special loan support projects for individuals purchasing homes to prevent the spread of mortgage defaults. If commercial banks provide related support within six months after November 11, all such loans will be classified as qualified loans during the period set by the authorities. Even if the loans later become non-performing, the authorities have announced a policy to exempt the responsible institutions and employees from liability.

Earlier in August, China had already set up a national special loan of 200 billion yuan (approximately 37.068 trillion won) to alleviate developers' funding difficulties, releasing liquidity through state-owned banks at a low interest rate of 1.75%. Each bank has added funds to this, issuing a total of 1 trillion yuan in loans. The market views the current measures as an effort to reduce the risk of related loan defaults and inject more funds into the market to ease the industry's repayment crisis.

Meanwhile, China's real estate market accounts for about 30% of the gross domestic product (GDP). The estimated scale of domestic and foreign debts that the industry must repay by next year is at least 292 billion dollars (approximately 384 trillion won).

This content was produced with the assistance of AI translation services.