China plans $29 billion in special loans to troubled developers: report

China will provide 200 billion yuan ($29.3 billion) in special loans that stalled housing projects are delivered to buyers, people familiar with the matter said, boosting financing support for its troubled property sector.

The previously unreported size of the loan program, announced with details late Friday by China’s housing ministry, finance ministry and central bank, would make it the biggest financial commitment from Beijing to date to tackle a property crisis that has fueled a slump in house prices. Real estate sales fell.

Thousands of middle-class Chinese are stranded with down payments and loans on properties that cash-strapped developers are now struggling to make ends meet. Some home buyers have begun boycotting mortgage payments, a threat to social stability during the politically sensitive run-up to 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 the China Development Bank and the Agricultural Development Bank of China, said the person, who asked not to be identified, discussing private information. Special loans will be used only on homes that have been sold but are yet to be completed.

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

“We view the introduction of the central government’s bailout fund as the first meaningful positive development in the past five to six weeks,” Nomura Holdings Inc. analysts Jizhou Dong and Stella Guo said in a note on Sunday. They expect the initial investment to be effective, from at least 200 billion yuan to 300 billion yuan.

Chinese banks cut their benchmark lending rates for the second time since May 20, urging them to boost overall lending to support the nation’s flagging economy. It comes after the central bank unexpectedly cut its key policy rate last week to support growth.

The rate cut was the latest in a series of measures to help the real estate sector as a liquidity crisis deepens the recession in the world’s second-largest economy. China is set to miss its growth target of around 5.5 percent this year, and youth unemployment is at a record 20 percent.

Earlier this year, China allowed banks and bad-loan managers to ease restrictions on some loans to ease the cash crunch. In April, the central bank met with about 20 major banks and asset management firms to help resolve the crisis at a dozen large real estate firms, including China Evergrande Group. Local authorities have offered a variety of housing incentives, including lowering wage-payment requirements and encouraging families with more children to own more properties.

However, China’s tough pursuit of a Covid zero, repeated lockdowns, and a rise in bad loans have undermined confidence and made banks reluctant to lend. Bank lending to the real estate sector fell for the first time in 10 years, and the decline could continue, according to Bloomberg Intelligence analyst Christy Hong.

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