Improvement to balance sheets and formation of virtuous cycle key goals

 

China's financial regulators have drafted an action plan for improving the balance sheets of quality property developers in an effort to defuse financial risks to the real estate sector and assist the property market to form a virtuous cycle.

 

The People's Bank of China, the central bank, is considering launching several structural monetary policy instruments to stabilize operations of the real estate sector.

 

The proposed instruments will include a program supporting loans to ensure delivery of presold homes, a program supporting rental housing loans and a tool supporting bond financing for private enterprises.

 

The details will be disclosed later, said Zou Lan, head of the PBOC's monetary policy department.

 

The central bank and other relevant departments recently drafted and proposed a plan to improve the balance sheets of quality property developers facing liquidity issues in the sector.

 

Focusing on property developers that concentrate on their main business, conform with regulations and have good qualifications and importance in the overall system, the plan aims to improve their cash flows and guide their balance sheets to return to the safe range, said Zou at a news conference on Friday.

 

The departments concerned plan to push forward 21 tasks, including the implementation of existing policies and a series of new measures, such as launching a special-purpose relending program for national asset management companies, to accelerate risk mitigation in the real estate sector, he said.

 

The plan is in line with the tonesetting Central Economic Work Conference in mid-December that called for effectively defusing risks to quality property developers, the Xinhua News Agency reported on Friday.

 

There remains quite a lot of pressure to stabilize the property market, which urgently needs precise policies to boost market confidence.

 

"(Therefore) financial authorities should constantly improve their financial policies toward the real estate sector, and the measures should take the short-term, middleterm and long-term development into consideration," Xinhua quoted Pan Gongsheng, deputy governor of the People's Bank of China, as saying.

 

The new move along with previous supportive financial measures will allow prime real estate firms' capital to flow in a better condition, ensure presold home projects' delivery, eliminate risks, thus helping the property market to gradually get back on the right track and then form a virtuous cycle, said Wen Bin, chief economist with China Minsheng Bank.

 

Over the last 10 years, the balance sheets of China's real estate companies expanded rapidly. Total assets of the top 50 property developers in the country posted a tenfold increase. At the same time, the liability structure of the sector became highly diversified.

 

Financial liabilities accounted for only 31 percent of the total. Real estate development loans offered by banks, part of the financial liabilities, formed only 14 percent of the total, Zou said.

 

Li Yujia, chief researcher at the Guangdong Planning Institute's residential policy research center, said the proposed plans follow a joint meeting of the PBOC and the China Banking and Insurance Regulatory Commission on Jan 10.

 

The meeting called for fully implementing the spirit of the Central Economic Work Conference, including upholding the principle that "housing is for living in and not for speculation", promoting the smooth transition of the real estate industry to a new development mode and preventing and defusing major economic and financial risks.