Property downturn deepens as lending slows across the board(willtrust-hk)

Property downturn deepens as lending slows across the board

The property market downturn in China has deepened in recent months, according to the World Bank's China Economic Update. The report notes that manufacturing and infrastructure investment faced pressure from corporate profit declines and other factors.

Bank loan growth slows amid weak private demand

The same report states that bank loan growth slowed to a year-on-year increase of 6.4%, driven by weak private sector credit demand. This reflects a broader cooling of lending activity in the economy.

A view of under-construction residential buildings in China

A prolonged decline in housing sales

Reports from media outlets noted that homebuyers are increasingly viewing property as a losing investment. In the past two years, property developers have collapsed under heavy debt, sharp declines have occurred in new home sales, and consumers have shown persistent belief that houses are no longer sound investments. Lenders have become less willing to extend loans easily, making it difficult for developers to repay existing loans and complete construction of homes already sold to buyers.

A bank building with a sign showing declining loan growth

Government measures to support the market

To counter the downturn, Chinese authorities have introduced measures to support developers and the housing market. As reported by media, financial regulators and the central bank indicated that banks should not immediately cut off loans to distressed projects; instead, they should extend repayment periods and provide new loans to increase support. Additionally, the government announced that some developers could use operating property loans obtained from banks to repay other property loans or bonds.

A chart showing housing sales and loan growth decline in China

The road ahead: official and expert views

In terms of the property market, experts quoted in media reports noted that the downturn has self-fulfilling characteristics, as developers' debt problems deter buyers, pressuring sales, and the lack of new business further worsens developers' financial troubles. An analyst raised the question of whether and when the central government would intervene to take main responsibility for containing the downturn's spread. A comparison was made with the US government's actions during the global financial crisis, when it introduced the Troubled Asset Relief Program (TARP) to bail out financial institutions.