Banks Told to Protect Homebuyers Amid Developers’ Debt Crises

China’s financial regulators signaled moves to slightly ease real estate lending restrictions at two recent meetings that have called on financial institutions to help protect homebuyers, industry insiders and analysts say.

In a Wednesday meeting (link in Chinese) convened by the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission, regulators asked banks to join state departments and local governments’ efforts to ensure the stable and healthy development of the property market and to protect homebuyers’ interests.

The same message was delivered at the PBOC’s third-quarter monetary policy meeting (link in Chinese) on Friday.

The meetings came as China’s property market is weathering liquidity shortages and default risks caused by strict restrictions on borrowing in place since last year. Home sales and land auctions are cooling and investor confidence is thinning. Regulators are concerned that unfinished projects could dampen interests of homebuyers and trigger protests. All eyes are now on China Evergrande Group, as the real estate behemoth struggles to pay back its debts and is rumored to be on the verge of collapse.

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Caixin’s coverage about Evergrande’s debt crisis

The Wednesday meeting indicates regulators’ milder stance on real estate lending policies, a source with knowledge of the issue said.

“There is a dilemma in regulating real estate finance,” said a banker who specializes in corporate banking. “On the one hand, regulators can’t throw real estate companies off a cliff on a large scale or increase their risks of default, as this concerns the economy and the general public’s housing issue. It’s likely that regulators in the (Wednesday) meeting asked banks not to demand that property developers repay loans ahead of maturity dates. But on the other hand, if regulators ease lending restrictions too much, housing prices will surge again and people won’t be happy.”

The policies that limit borrowings in the real estate sector won’t change, but their implementation could be more flexible to avoid liquidity crises (link in Chinese), said Chen Xi, a fixed-income analyst at Pacific Securities Co. Ltd.

Some market insiders said the emphasis of the two meetings was to protect the interests of homebuyers, some of whom are experiencing longer waits and higher costs when they take out mortgages.

The focus of protecting the interests of consumers will be on regulating and curbing developers’ misappropriation of homebuyers’ funds while moderately adjusting mortgage issuance in regions where restrictions were relatively strict previously, according to an analysis by investment bank China International Capital Corp. Ltd.

The Wednesday meeting made it clear that policymakers would only bail out homebuyers, but not the entire property sector, at least not for now, wrote economists with Macquarie Group Ltd., an Australian financial service provider.

“It’s possible that real estate lending policies will be slightly adjusted, but a systematic easing is unlikely,” said Guo Lei, chief economist of GF Securities Co. Ltd.

Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Lin Jinbing (jinbinglin@caixin.com)

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