New rules boost China property shares but could miss the mark, analysts say - CNA

Although property developers and analysts welcomed the new measures, they were sceptical about their immediate impact, saying banks have been reluctant to lend to most private developers, despite regulators' repeated calls to do so.

"While this could help to ease liquidity risk of indebted developers, property demand will need to be stronger for home prices and sales, and thus the sector, to recover," UBS analyst John Lam said in a note.

Also complicating matters is that troubled developers may have already pledged most of their quality commercial assets for other debt, developers and analysts say.

"We have contacted some banks this morning. They didn't give a positive response," said an executive at a developer that has defaulted on its debt, speaking on condition of anonymity as he was not authorised to talk to the media.

"Unless the central government forces the banks to lend, they wouldn't want to take the risk."

Banks have been very strict in not lending to commercial properties that are in bad locations or have poor operations since the debt crisis, the executive added.

China's liquidity crisis has led many developers to default on, or delay, debt payments, as they struggle to sell apartments and raise funds.

Despite Beijing's recent support measures, such as easier access to cash for developers, cuts in home mortgage rates and relaxed rules on buying homes, the market has shown little sign of stabilising, with sales staying weak and yet more defaults.

Valuations have also slumped in the last few years, making it impossible to increase the lending from existing loans, even though developers may now borrow up to 70 per cent of the property value, the executive at the developer added.

UBS's Lam expected the credit support policy to be positive for private developers with high commercial property assets exposure, such as Longfor and Seazen Group.

But the policies do not go far enough to change the fundamental problem of weak confidence and fragile demand of homebuyers, which is weighing on home sales, property firms' major source of income, analysts and developers said.

Nomura said the biggest hurdle for a real property recovery was the large scale of pre-sold but unfinished homes in low-tier cities. The bank estimated completing construction of such homes nationwide would require 3.2 trillion yuan.

"Given the sheer funding gap faced by developers to secure the successful delivery of pre-sold homes, we doubt whether banks are the correct choice for addressing this issue," it said in a research note.

It added that it believed Beijing would eventually need to reach into its own pockets to fill the gap, using printed money from the central bank.

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