China Plans $29 Billion in Special Loans to Troubled Developers: Report

China will offer 200 billion yuan ($29.3 billion) in special loans to ensure stalled housing projects are delivered to buyers, people familiar with the matter said, boosting financial support for its beleaguered real estate sector.

The previously undisclosed size of the loan program, which was announced with few details by the housing ministry, finance ministry and China’s central bank late on Friday, would make it the largest financial commitment yet by Beijing to contain a housing crisis that has seen house prices plummet and property sales plummet.

Hundreds of thousands of middle-class Chinese have been caught in limbo after making down payments and taking out loans on properties that cash-strapped developers are now struggling to complete. Some homebuyers have begun boycotting mortgage payments, a threat to social stability during the politically sensitive process of the Communist Party’s leadership transition later this year.

The People’s Bank of China and the Finance Ministry will channel the money through policy banks such as China Development Bank and China Agricultural Development Bank, said the people, who asked not to be identified discussing private information Special loans will only be used on homes that have already been sold but are not yet finished.

The PBOC, Ministry of Finance and Ministry of Housing did not immediately respond to requests for comment.

“We see the central government’s introduction of bailout financing as the first significantly positive development in the past five to six weeks,” said Jizhou Dong and Stella Guo, analysts at Nomura Holdings Inc. in a note on Sunday. They expected that the funding should reach at least 200 billion to 300 billion yuan as initial investment to be effective.

Urged to boost general lending to support the country’s weak economy, Chinese banks cut their benchmark lending rates for the second time since May 20. This came after the central bank unexpectedly cut its key policy rate last week to support growth.

The rate cuts were the latest in a series of moves aimed at helping the housing sector as a liquidity crunch worsens the slowdown in the world’s second-largest economy. China is on track to miss its growth target of 5.5% this year and youth unemployment is at a record 20%.

Earlier this year, China allowed banks and bad debt managers to ease restrictions on some loans to ease the cash crunch. In April, the central bank held a meeting with about 20 major banks and asset management firms to help resolve the crises of a dozen major real estate companies, including China Evergrande Group. Local authorities have offered a variety of housing incentives, including reducing down payment requirements and even encouraging families with more children to own multiple properties.

However, China’s dogged pursuit of zero Covid, including recurring lockdowns, and a surge in bad debt have clouded confidence and made banks reluctant to lend. Bank lending to the real estate sector has fallen for the first time in 10 years, and the decline could persist, according to Bloomberg Intelligence analyst Kristy Hung.

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