China's city governments are moving rapidly to identify property projects eligible for fast-track funding and related support. Some 6,000 projects have been queued up since the central government announced a coordination mechanism and "white list" scheme on Jan. 5, 2024. So is this a bailout for developers? The short answer is no.
Instead, S&P Global Ratings believes the policy is aimed at rebuilding homebuyer confidence. Indeed, projects don't have to be distressed to make the white list. The aim, in our view, is to reduce uncertainty on deliveries. The vast majority of China's new-home purchase are on a pre-sales basis, so such uncertainty can be damaging to the market.
Housing and financial authorities are working together on this scheme, with one group of officials vetting the white list, and the other coordinating with banks on lending to the projects. Key questions include banks and governments' due diligence, project selection, and speed of execution. And ultimately--whether authorities can get the market moving without transferring market risks from developers to governments and banks.
Frequently Asked Questions
Who's who in China's 2024 white list scheme. How is this program different than other policy supports since the downturn?
The Ministry of Housing and Urban-Rural Development (MOHURD) and the National Financial Regulatory Administration (NFRA), China's housing and financial regulator are jointly running this. They aim to establish a financing coordination mechanism for real estate sector at each prefecture-level city level.
A coordinated effort designed to smooth conflicting interests among government bodies. This support program has a stronger mechanism, in our view, for housing and financial regulators to jointly negotiate on the shared goal of stabilizing the real estate sector. We believe this coordination mechanism is crucial, given conflicting interests as one of main challenges in executing previous policies.
The "one city, one strategy" policy allows for flexible implementation at the city level. Housing-market dynamics vary widely depending on local conditions. The white-list program should work together with the demand-side policies of each individual city.
As of end-February, 276 cities in 31 provinces have set up the mechanism.
We believe the policy is still being negotiated and refined, including guidance on how to share responsibility between city officials and banks if loans under the white list become nonperforming.
What is the overarching aim of the white-list program?
To boost homebuyer confidence by ensuring deliveries. China's developers depend heavily on presales that can be launched early in the development process. If buyers are worried developers don't have the cash to complete a pre-sold house, they stay away.
Last year sales sharply declined in the primary housing market (new developments), but increased by about 30% in secondary-housing markets, by our estimates.
This outperformance in the secondary market also shows that homebuyers still have purchasing power. We believe policymakers are focusing on deliveries to rebuild confidence in the primary housing market.
Chart 1
How is this different from other recent initiatives, such as the "special housing-delivery loan" in 2022?
The scope is wider--specifically, all ongoing projects qualify. In contrast, the previous special housing-delivery loan ("Baojiaolou") program was aimed at stalled presold projects.
The white-list program, on the other hand, encourages developers to assess their projects and submit lists to housing authorities. Among the 6,000 white-list projects so far, some 82% are not under state-owned companies. Distressed developers such as Sunac China Holdings, Greenland Holdings, and Country Garden Holdings have reported that their projects are included on the whitelist.
Table 1
| The new white-list project widens focus to nondistressed projects, among other refinements | ||||||||
|---|---|---|---|---|---|---|---|---|
| The new project-focused white list | The previous developer-focused white list | The special housing-delivery loans | ||||||
| Dates | Since January 2024 | By media reports, banks started drafting a white list at end-2023; some lists were finalized in January 2024. | Program launched in 2022 by the PBoC, and later extended until May 2024. | |||||
| Nature | Banks will consider approving construction loans to projects on the white list. | The list focused on developers eligible for funding support, and was not a binding agreement. | Special loan program designed to support developers in completing stalled projects. | |||||
| Lender | Commercial banks | Commercial banks | Policy banks | |||||
| Borrower | Projects with repayment capability. | Developers or projects depending on what type of loan. | Projects at risk of non-delivery. | |||||
| Use of proceeds | Strictly for the project. Banks to monitor the use of proceeds. | Depending on what type of loan. | Strictly for the project. Bank accounts of borrowers monitored by the lender and sometimes, by the local government. | |||||
| Scale and scope | White list consists >6,000 projects, loan approval >RMB200 billion (by end-February 2024), for both distressed and non-distressed developers | Each bank forms its own list of around 40-50 developers, mainly SOEs and non-distressed POEs. | Majority of the RMB350 billion quota was used by end-2023. | |||||
| PBoC--People's Bank of China. SOE--State-owned enterprise. POE--Privately owned enterprise. RMB--Chinese renminbi. Sources: News reports. PBoC announcement. | ||||||||
After being added to the list, the next step is coordinating with participating banks for a loan. Will the banks be quick to respond?
Banks will be attentive to this high-profile program, but still have to perform due diligence.
According to China's housing regulator, bank loan approvals for white-list projects had already surpassed Chinese renminbi (RMB) 200 billion by end-February 2024. We believe more than RMB100 billion of these loans came from five of China's six megabanks. This indicates the roll-out has been swift. However, we can't be sure approved amounts will eventually be drawn down. Normally, construction loans are drawn down batch by batch and tied to construction progress.
In addition, banks won't just be throwing loans at white-list projects. They will be processing the loans as per normal: assessing the cash flow of the projects, underlying collateral value and financing guarantees. Furthermore, some loans to projects of distressed developers could be an adjustment on existing credit lines rather than new advances, we believe.
How will being on the white list help developers?
Nondistressed developers may get faster loan approval for their projects' construction loans. That should support cash flow at project level and preserve financial resources at the parent level. This should be helpful for developers to mobilize resources and for repayment of debt at the holding-company level.
For distressed developers, the story is a bit different. The program focuses on projects and the loans will be used for completion of said project only. They cannot be sent upstream to the parent level. We assume banks will monitor the use of funds.
We don't expect this policy to save the deeply distressed developers. As the head of MOHURD put it at the recent Two Sessions legislative event, insolvent developers "should undergo bankruptcy or financial restructuring."
Will the program set a bottom to the real estate crisis?
We are sticking with our view that China's property sales will fall another 5% in 2024, mainly due to excess supply and weak demand in the lower-tier markets.
The white-list program is one of several policies focused on the property market. In our view, the aim is to contain risks, rather than revitalize the sector. Noncompletion and nondelivery present material risks for homebuyers and affect social stability.
Will the local governments back the white-list loans?
No. The governments are acting as coordinators, not guarantors. They are responsible for screening the projects submitted by developers and forming white lists. They then pass that list to banks and will also likely try to coordinate banking resources in the process. There is no direct impact to the fiscal account.
We believe commercial vetting of loans by participating banks will help to mitigate moral-hazard risks. That said, we don't rule out the possibility the government may push the banks harder if the program is not effective in alleviating funding pressure for viable property projects.
Will these policies lead to rapid growth in banks' loans to property developers in 2024. What will be the white list's influence on asset quality?
We don't expect a major jump in bank loans to property developers. The banks remain generally cautious and have thus far managed to limit exposures, despite a number of other property-boosting policies. Last year, for example, the banking sector's property-development loans expanded by 1.5%, much slower than total loan growth of about 11%.
By our estimates, the pace of property loans will pick up slightly in 2024 but remain in low single digits. Financial institutions will maintain their underwriting standards and can decline lending to whitelisted projects that fail to meet these standards.
Commercial banks on average have a manageable exposure to property development loans, which account for just 6%-7% of their total loan portfolio. The megabanks' loan portfolios are even more diversified, with exposure to property developers about 4% on average.
Banks can mitigate credit risks on policy-related lending by selecting projects with good cash flow or adequate underlying collateral. Overall, we don't believe the white-list mechanism will have a negative impact on their asset quality.
Related Research
- Credit FAQ: China Rules Easing Gives Developers A Shot Of Liquidity, Jan. 31, 2024
- China Property Watch: A Slow, Sequential Recovery In 2024, Oct. 16, 2023
- China Still Has More Policy Tools To Stabilize The Higher Tier Property Markets, Sept. 25, 2023
- Banking Industry Country Risk Assessment: China, Aug. 16, 2023
This report does not constitute a rating action.
| Primary Credit Analysts: | Fan Gao, Hong Kong + (852) 2533-3595; fan.gao@spglobal.com |
| Esther Liu, Hong Kong + 852 2533 3556; esther.liu@spglobal.com | |
| Ming Tan, CFA, Singapore + 65 6216 1095; ming.tan@spglobal.com | |
| Phyllis Liu, CFA, FRM, Hong Kong +852 2532 8036; phyllis.liu@spglobal.com | |
| Secondary Contacts: | Lawrence Lu, CFA, Hong Kong + 85225333517; lawrence.lu@spglobal.com |
| Susan Chu, Hong Kong (852) 2912-3055; susan.chu@spglobal.com | |
| Ryan Tsang, CFA, Hong Kong + 852 2533 3532; ryan.tsang@spglobal.com | |
| Christopher Yip, Hong Kong + 852 2533 3593; christopher.yip@spglobal.com | |
| Research Assistant: | Ivy Yi, Hong Kong |
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