Chinese Banks Scale Back Credit for Real Estate Development

Financing channels for Chinese property developers have become increasingly scarce since the start of the new year, with domestic media now reporting that many commercial banks are suspending their lending operations in this area.

A number of Chinese banks have already suspended real estate development loans, or become far more cautious about the extension of credit the real estate sector, according to China Securities Journal.

Some lenders have already been hit with fines by the China Banking Regulatory Commission for the illicit provision of real estate loans.

On 26 January CBRC’s Jiangsu province office slapped the Hangzhou branch of China Zheshang Bank with an administrative penalty of 200,000 yuan for the illegal provision of real estate development loans to a project.

Heightened scrutiny on the part of regulators is already making both banks and developers far more cautious.

“We haven’t suspended applications for new projects, but basically there are no people who are applying for real estate loans,” said one real estate loan officer from a bank in central China to Securities Journal.

CBRC previously flagged a crackdown on illicit lending to commercial real estate projects in 2018, which would specifically target various forms of financing for the land procurement costs of developers; projects whose “four documents” are incomplete, as well as those whose capital sums are inadequate.

Zhang Dawei (张大伟), chief analyst with Centaline Property, said regulators were placing stricter controls on the use of bank loans or trust funds to invest in the real estate market, and that the financing difficulties of real estate developers would only become more onerous.

“At present funding is extremely tight, said one veteran of the real estate industry to the Journal. 

Sources from the trust sector have further revealed that trust companies are becoming more cautious about real estate financing operations given tightening regulations.

The one area where real estate financing remains comparatively loose however, is rental apartment projects, given Beijing’s efforts to expand the home leasing market in order to resolve housing supply issues in China’s major cities.

Companies involved with real-estate investment trusts report that rental apartments, rental homes and other real estate leasing REIT’s have become increasingly popular financing areas.

“The several REIT projects that we’ve recently undertaken have been approved quite quickly following submission to regulators,” said one Beijing source.

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