In a joint statement made by the People’s Bank of China and the National Financial Regulatory Administration, it was stated that support policies for the sector will be expanded in order to overcome the real estate crisis, which is considered one of the biggest obstacles to economic recovery.
China will expand its support policies, including allowing loan repayments to be delayed for one year, to support cash-strapped real estate developers and the struggling real estate sector.
Financial institutions will be encouraged to negotiate with real estate firms to extend outstanding loans to ensure delivery of homes under construction, according to a joint statement from the People’s Bank of China and the National Financial Regulatory Administration. A one-year repayment extension will be granted for some of the outstanding loans due before 2024.
While the real estate crisis in China, which has been going on for two years, has hindered the recovery in the world’s second largest economy, this situation raises expectations for the government to take more steps to stimulate demand.
Although home sales recovered briefly earlier this year, the continued decline in the sector in June increased the pressure on debt-ridden developers.
Real estate stress was exacerbated this week as government-backed real estate developer Sino-Ocean Group’s bonds plummeted over concerns over its debt load and the defaulting Shimao Group was unable to find buyers for a $1.8 billion project.
China’s leading construction company, China Vanke, announced that the country’s domestic market was worse than expected, while Goldman Sachs predicted a higher default level for China’s high-yield dollar-denominated real estate bonds.
“As long as physical property loses investment attractiveness as an asset class, it will be difficult for homebuyer confidence to reverse and sales to recover,” Bloomberg Intelligence credit analysts Andrew Chan and Daniel Fan wrote in a July 5 memo. It may choose to default or restructure rather than try to resolve it.”