Chinese Banks Provide Over 5 Trillion Won in Loans to Private Real Estate Companies Within a Month

November Real Estate Company Loans Up 41.7% MoM
'Recovery Key' Housing Market Sales Continue to Decline

Major state-owned banks in China have lent more than 5 trillion won worth of loans to private real estate companies since last month. Recently, Chinese authorities have repeatedly announced plans to expand financial support, including loans, to real estate companies struggling with funding difficulties.

On the 10th, Chinese media such as China Securities Journal reported that Industrial and Commercial Bank of China (ICBC), a major state-owned bank, lent about 5 billion yuan (approximately 920 billion won) to private real estate companies from last month until recently, while Agricultural Bank of China and China Construction Bank each lent more than 5 billion yuan.

Additionally, Bank of China provided loans exceeding 4 billion yuan (about 740 billion won) within a month, and Bank of Communications executed loans exceeding 3 billion yuan (about 550 billion won) in just two weeks.

China Securities Journal explained that banks in China, including five state-owned banks, have released more than 30 billion yuan (about 5.5 trillion won) since November in accordance with the Chinese authorities' policy to support private real estate companies. The speed of liquidity supply is also fast, with 14 billion yuan (about 2.6 trillion won) loaned in just the past two weeks.

More than 90% of the loans provided by these banks flowed into mixed-ownership (state-owned + private) companies or private companies. Other banks are also accelerating approvals for loans to private companies, so the scale of support is expected to increase further.

Construction site in Shanghai, China [Image source=Yonhap News]

Thanks to this support, the loan volume of real estate companies increased by about 40% last month. According to Chinese market information firm CRIC, the total loan amount of 80 surveyed real estate companies in China was 30.276 billion yuan (about 5.6 trillion won) in November, up 41.7% from October.

Among these, domestic bond loans for real estate companies amounted to 27.216 billion yuan (about 5 trillion won), increasing 66.8% in one month, while overseas bond loans were 164 million dollars (about 216 billion won). This is the first time since May this year that Chinese real estate companies have issued overseas bonds.

However, looking at cumulative data, the total loan amount for 80 real estate companies from January to November this year was 543.288 billion yuan (about 100 trillion won), down 34.2% compared to the same period last year. The reason frontline Chinese banks are releasing funds is that, amid ongoing real estate downturn and crisis rumors of major companies, authorities have demanded an expansion of loans.

Earlier, the People's Bank of China (central bank), the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission held a financial institution meeting on the 17th of last month, issuing guidelines to increase real estate loans at least above the banking industry average and to focus on loans related to private real estate companies.

However, market experts believe that expanding loans alone has limitations in leading a real estate recovery. According to Chinese media 21st Century Business Herald, Sha Lei, chief economist at Guohai Securities, said, "Loan recovery is the first step (toward real estate recovery)," adding, "Real estate companies can truly overcome difficulties only when sales increase and their ability to generate their own cash flow recovers."

Since the market downturn has not eased, real estate companies' sales are still not increasing. The China Index Academy, which collects and publishes real estate transaction data, reported that the monthly sales of the top 100 real estate companies in China last month decreased by 29.2% compared to November last year and by 0.6% compared to October this year. As the contraction trend continues, sales from January to November this year decreased by 14.7% compared to the same period last year.

International credit rating agency Standard & Poor's (S&P) stated in a report released at the end of last month that next year will be a year for the Chinese housing market to bottom out, and while state-owned real estate companies will lead the industry, the theme for private companies will still be "survival," according to Singapore's Lianhe Zaobao.