The Chinese government may offer fresh signals of support to the beleaguered property sector during the ruling party's biggest annual meetings due to begin March 4.

Further easing measures, such as more rate cuts, are likely on the cards as funding access for some developers and mortgage demand have yet to recover to levels seen before the waves of property defaults that roiled the market in 2021. This is despite a slew of measures introduced late last year aimed at freeing up more liquidity for bank lending and lowering borrowing cost for homebuyers, analysts said.

"Banks … so far aren’t eager to step up lending," said Eric Wang, a Shanghai-based banking analyst at CMB International Securities.

Banks have slowed lending to many private developers on concerns about their repayment ability amid falling home sales and rising funding costs, problems that are more acute among highly leveraged builders, Wang said. Instead, lenders are keen on lending to state-backed developers.

Beijing cut banks' required reserve ratio as well as the benchmark loan prime rates since December 2021 in an attempt to revive bank lending that grew at the slowest pace in more than 15 years in January. Banks have not been stepping up lending as aggressively as the government had hoped, as lenders are concerned about the impact on their overall asset quality and margins, analysts said.

Further easing won't likely be drastic though, analysts said. China has been trying to improve market liquidity in a measured pace without encouraging speculation in the home market or re-leveraging the property development sector that had expanded on cheap credit for years.

Top party officials are set to discuss a roadmap for China's economic and social development in 2022 during the "Two Sessions" meetings of two major political bodies — the Chinese People's Political Consultative Conference, an advisory body of over 2,000 members, and the National People's Congress, the nation's top legislative body. The meetings will set the tone for future policies as China navigates growing economic uncertainty and the lingering COVID-19 pandemic.

Property woes

Falling home prices and transactions have taken a toll on the world's second-largest economy. China's GDP grew at the weakest pace in more than a year in the October-December quarter of 2021.

Investment by property developers rose 4.4% in 2021 from a year earlier, down from a 38.3% gain seen in the first two months of the year, according to the National Bureau of Statistics. Property sales by floor area rose 1.9% year over year in 2021, down from a 104.9% growth in the first two months of the year.

Home sales continued to shrink even after the central bank lowered the five-year loan prime rate, which is often used to price mortgage rates, in January. Contracted home sales of the nation’s 100 largest developers fell by a third in the first two months of 2022 from a year earlier, according to the data by China Index Academy.

Short-term boost

Some banks in China have issued infrastructure bonds to fund their lending to developers. These bonds only fund the acquisitions of real estate projects, in which banks are essentially sharing the credit risk of those projects with bondholders.

Beijing has asked banks to provide loans to creditworthy developers or companies for acquisitions of real estate projects, especially the unfinished properties that are affected by the financial difficulties of their original owners. The policy aims to stabilize home supply and prices and restore the confidence of homebuyers.

For instance, Ping An Bank Co. Ltd. and Shanghai Pudong Development Bank Co. Ltd. were reportedly considering to issue up to a total of 60 billion yuan of infrastructure bonds, according to various local media reports in late February.

Infrastructure bonds, however, are often issued at the beginning of a year, according to Soochow Securities Co. The volume of these bonds may soon pull back, which will likely reduce the banks' appetite to lend and increase the urgency for the government to step up measures to boost banks' willingness to lend to real estate projects, the brokerage said.

As of March 3, US$1 was equivalent to 6.32 Chinese yuan.