Banks halt credit for property firms
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China's four biggest banks have stopped extending new credit to developers for the rest of the year, while the total credit available to property firms will be cut by 20 percent next year.
The Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China used up their credit quotas for developers this year, China Real Estate Business, a newspaper under the Ministry of Housing and Urban-rural Development, reported yesterday.
The credit tightening came after China failed to lower house prices in key cities despite a string of measures, including raising down payments and mortgage rates.
Property prices in 70 major Chinese cities climbed 8.6 percent last month compared to the same month of last year. It represented a year-on-year gain for 17 months in a row, despite the growth rate starting to decelerate in May after peaking in April.
Analysts said that developers will likely face a shortage in capital in the second half of next year, which may force them to cut prices sharply.
China's four biggest state banks have halted approval of new loans since the end of October, China Real Estate Business said, quoting unnamed executives from the lenders.
"What's worse is that there is also limited scope to replace some of the existing loans with property loans," a credit department executive at the ICBC told the newspaper.
In the third quarter, new loans to the property sector stood at 340 billion yuan (US$51.23 billion), 51 percent lower than the quarterly average of 690 billion yuan in the first half of the year, reported the central bank, People's Bank of China.
"As lenders curtail extending credit, an increasing number of property developers will resort to trust funds and foreign capitals at much higher borrowing costs," said Wang Xinliang, an analyst at Minsheng Securities.
"Under the capital pressure, developers will be prone to cut house prices to boost sales," added Wang.
Based on the third-quarter's earnings report of 56 listed companies, net operating cash flow was minus 52.2 billion yuan, compared with 9.3 billion yuan in the same period of last year - a 61.5 billion yuan difference.
Among 60 major property groups, 18 companies posted an asset-liability ratio of over 70 percent, according to a recent survey by the China Banking Regulatory Commission.
"As a result of huge investment in home building in the past year amid the recovery, record numbers of new houses are expected to come onto the market in the second half of next year, putting pressure on developers to lower prices to remain competitive and to recoup capital flows," said Li Shaoming, an analyst from China Jianyin Investment Securities.
