China weighs unprecedented builder support with first-ever unsecured loans

China may allow banks to offer unsecured short-term loans to qualified developers for the first time, sources said, a major push to ease the property crisis that’s dragging down growth in the world’s second-largest economy.
 

As part of a package of new measures to backstop the real estate industry, regulators are considering allowing banks to issue so-called working capital loans to some developers, the people said, asking not to be identified discussing a private matter. Unlike other types of loans available to builders that typically require land or assets as collateral, the new financing facility would be unsecured and available for day-to-day operational purposes, potentially freeing up capital for debt repayment, the 

people said.

Officials are also weighing a mechanism that would allow one lender to take the lead on supporting a specific distressed builder by coordinating with other creditors on financing plans, the people said.

Implementation would require regulators to exempt bankers from being held accountable for possible bad loans given the high risks involved, the people said, adding that deliberations are ongoing and subject to change. The National Administration of Financial Regulation didn’t respond to a request for comment. 

If the support measures are approved, they would represent China’s most forceful attempt yet to plug an estimated $446 billion shortfall in funding needed to stabilise the industry and deliver millions of uncompleted homes. President Xi Jinping is also stepping up support for the broader economy, with moves this week indicating increased urgency to stop a downward spiral in the property sector from derailing growth and endangering financial stability.

“This is a good place to start to soothe buyer fears over unfinished homes, which is what has been dragging sales,” said Niu Chunbao, a fund manager at Shanghai Wanji Asset Management, adding that the measures would have been more effective if they had been rolled out earlier. “I would expect to see a sequential recovery in monthly sales after three months of implementation.”

A Bloomberg Intelligence gauge of developers rallied 9 per cent on Thursday, while dollar bonds of some real estate companies have soared this week as investors bet on more policy action. China’s previous measures have largely failed to arrest a slump in the home market that starved developers of cash, delayed completion of apartments and deprived the economy of a key driver. The trickle of policies included mortgage easing for buyers, down-payment reductions, and a 200 billion yuan ($28 billion) special loan pledge to ensure project deliveries. 
 

Authorities are finalising a draft list of 50 developers eligible for financial aid that includes Country Garden Holdings Co. and Sino-Ocean Group, people familiar said earlier, part of the pivot by Beijing to help some of the nation’s most distressed builders. Meanwhile, China’s top lawmaking body said on Wednesday that banks should increase funding for developers to reduce the risk of additional defaults and make certain that housing projects get completed.