Cautious approach: Banks are reluctant to lend to housing projects fearing more bad loans. File
| Photo Credit: Reuters

When China’s local governments began compiling a “whitelist” of housing projects for loans earlier this year, troubled developers hoped it would open a spigot of credit for a sector that remains a major stumbling block to a broad economic revival.

Four months later, new funding is only coming by the drip, reflecting the deep-seated caution about the outlook for China’s residential property market, according to Reuters interviews with bankers and developers.

Banks have been reluctant to heed Beijing’s repeated nudges to bolster credit to the embattled sector given the risks of more bad loans, further undermining confidence in the crisis-hit property market seen as crucial to shoring up a shaky economy.

New loans were only approved since late March, according to the sources, which surprised companies and investors who had expected fresh lending for developers at the start of the ‘whitelist’ programme months earlier.

The main hurdle to granting more new bank loans is the current weak property market conditions, said Lawrence Lu, managing director at S&P Global Ratings.

“Developers need to have a project in place to get funding … the issue now is whether the project can generate sufficient cash flow to repay the debt,” he said.

At least six defaulted private developers received bank approvals for new loans for “whitelist” projects since late March, according to one company statement, senior executives of two developers and two other people with knowledge of the program.

Those new loans were granted for fewer than a handful of projects and lending received so far was equivalent to hundreds of thousands of dollars per project, three of the people told Reuters.

That’s just a drop in the ocean given the vast stock of unfinished housing—a Reuters report in March estimated that the “whitelist” programme covers projects that need fresh financing of 1.5 trillion yuan.

The loans are only granted depending on the progress of construction, the three sources said, adding the volume of approval was “insignificant” given the huge number of uncompleted homes.

Frozen projects

The slow roll-out of the “whitelist” lending reflects the challenge facing Beijing which has pushed banks to speed up approvals of new loans to cash-starved private developers to complete their projects.

Under the “whitelist” mechanism launched in January, local governments nominate projects and state-owned as well as commercial banks are encouraged to provide lending. By March-end, banks had approved the equivalent of $72 billion in loans for 2,100 housing projects, state media reported.

Developers and bankers said many of these approvals restarted existing loans, rather than providing new credit.

Estimates vary widely, but analysts agree there are tens of millions of uncompleted apartments across China after a building boom turned to bust with the failure of developers. There is no public data available on the scale and terms of lending under the “whitelist” policy.

‘A bad deal’?

One of the six private developers whose projects got bank approval said it had decided to refuse the help.

“We think it’s a bad deal because financing incurs interest,” a senior executive at the developer told Reuters. “Once we use the ‘whitelist’ loans we have to complete the construction. However, we’re not able to sell all of the units under this bad market so it’s only increasing costs for us.”

Some bankers said they would continue to push back on the “whitelist” directive by negotiating with officials and explaining the shortcomings in projects.

Evergrande is the world’s most heavily indebted real estate developer, at the center of a property market crisis that is dragging on China’s economic growth. File
| Photo Credit: AP

The police in a southern Chinese city said they have detained some staff at China Evergrande Group’s wealth management unit in the latest trouble for the heavily indebted developer.

A statement by the Shenzhen police on Saturday said authorities “took criminal coercive measures against suspects including Du and others in the financial wealth management (Shenzhen) company under Evergrande Group.” It was unclear who Du was. Evergrande did not immediately answer questions seeking comment.

Media reports about investors’ protests at the Evergrande headquarters in Shenzhen in 2021 had listed a person called Du Liang as head of the company’s wealth management unit.

Evergrande is the world’s most heavily indebted real estate developer, at the center of a property market crisis that is dragging on China’s economic growth.

The group is undergoing a restructuring plan, including offloading assets, to avoid defaulting on $340 billion in debt.

On Friday, China’s national financial regulator announced it had approved the takeover of the group’s life insurance arm by a new state-owned entity.

A series of debt defaults in China’s sprawling property sector since 2021 have left behind half-finished apartment buildings and disgruntled homebuyers. Observers fear the real estate crisis may further slow the world’s second-largest economy and spill over globally.