Beijing officials are calling on Chinese banks to quickly approve loans to property developers struggling in a prolonged downturn. This is due to concerns about an impending “Lehman moment” caused by the real estate slump in China. Home prices have been declining for eight straight months as property values continue to drop, homebuyer sentiment decreases, and construction projects remain unfinished.
In an effort to boost sentiment and confidence in the real estate sector, authorities are implementing a “whitelist” mechanism. This program, initiated by Beijing last week, covers both state-backed construction companies and private developers in need of new financing totaling 1.5 trillion yuan. The program allows city governments to recommend residential property development projects to banks for financial support. However, there are concerns that rushing loan approvals could lead to lower loan quality.
By expediting loan approvals for residential construction, authorities hope to revitalize the real estate market. Many Chinese banks have been hesitant to increase credit exposure to the struggling property market, which has limited hopes for a real estate rebound and capped economic growth. The weakening consumer sentiment and growth outlooks have also impacted loan demand and business operations for banks in China. Majority of the top five state-backed lenders will report lower net income for the full-year 2023, reflecting the overall slowdown in the banking sector.
