creating real estate financing coordination mechanisms

context: Injecting new financing into real estate to stabilise the sector was at the core of December 2023’s Central Economic Work Conference, with Beijing signalling it must do more to prop up the sector before pushing ahead in the transition towards a more innovation-based economy. That means cajoling banks into doing more, including helping to complete unfinished ‘rotten tail’ projects, though they are reluctant to expand credit into a sector with dimmer future prospects.

Ministry of Housing and Urban Development and NAFR (National Administration of Financial Regulation) issued new measures to create city-specific real estate financing coordination mechanisms on 12 January 2024. Coordination groups will be set up in prefecture-level cities and above and led by local housing regulators. Members will include housing officials and local NAFR dispatched offices.

Key provisions include

  • creating a regular communication platform for real estate developers, banks and governments
  • creating lists of real estate projects in the jurisdiction that can be given financial support
  • setting up ‘green-lit’ credit channels for approved real estate developers
  • guiding developers to improve cash flow through asset reorganisation
  • encourage regular information disclosure by developers to facilitate better financing

Creating a list of approved projects is likely to face difficulties, an unnamed medium-sized bank official told Caixin

  • industry’s prospects unclear
  • industry’s main problem is insufficient demand, not financing
    • efficacy of more policy support for finance side uncertain

The coordination mechanism will help develop the centre’s goal of creating a ‘virtuous cycle’ between finance and real estate, notes Yan Yuejin 严跃进 E-Housing China Research Institute research director, especially by making financiers’ work easier.

The measures’ call to differentiate between project risk and company risk will help stabilise the real estate industry, contends Liu Shui 刘水 Index Academy Corporate Research director. Some projects facing temporary difficulties but with an overall balanced funding situation should be supported in restructuring or extending their credit support, regardless of the developer’s situation. That in turn will stabilise real estate investment and make project completions easier, improving expectations.