Local governments across China have moved to cushion the blow of the coronavirus outbreak for highly indebted property developers which have been forced to freeze home sales during the crisis but still face $100bn in maturing bonds this year.
Officials in Shenzhen, Xi’an and a number of other large cities have told developers that they can delay payments on land and taxes in order to improve the companies’ cash flows, after more than 100 cities banned sales of new housing units as part of their efforts to stem the spread of the disease.
Restrictions on presales will also be loosened, allowing the developers to raise cash from homes that are not yet completed.
If the crisis drags on, the pause in activity could hit property developers hard, researchers say, and policy support from local officials could be crucial to maintaining cash flows in the coming months as home sales suffer.
“Sales are in fact very bad and this could create [repayment] problems this year,” said Yan Yuejin, director of the E-House China Research and Development Institution in Shanghai. “But on the other hand, policy measures should be quite accommodative . . . If that’s the case then the pressure will be reduced.”
Mr Yan noted that monetary policy was likely to continue to loosen this year, which would give developers access to emergency funding.
A report from E-House showed that during the first week of February fewer than four homes a day were sold in Beijing, a city of more than 20m people, at a time when hundreds of homes would usually be sold every day.
One real-estate agent in Beijing said on Friday that little activity in the market had started up again because “people are still scared”.
China’s property developers must repay about $270bn in US dollar and renminbi debts over the next two years, according to data from Dealogic. In March, the companies face about $8bn in maturing bonds; the peak for the year will come in August with more than $13bn due.
Mounting leverage has often been a cause for concern among investors who fear that a shock in the market could disrupt cash flows and lead some of the country’s largest corporations to default.
China Evergrande alone owes more than $100bn and recently raised $2bn in bonds with interest rates of up to 12 per cent, adding to concerns that the debt levels are unsustainable. Hong Kong-traded shares in Evergrande fell by more than 11 per cent during the first 10 days of the coronavirus crisis but have recovered somewhat since then.
The accommodative local government policies are an example of the balance the government has been forced to strike: keeping down infections but making sure companies survive the stall in economic activity.
The central government in Beijing and President Xi Jinping have called on the nation to return to work despite the risks, as China faces a collapse in economic growth. Some economists estimate that the annual rate of expansion could slow between January and March to as low as 3.2 per cent, down from 6 per cent in the final quarter of 2019.
Some 40m people remain under strict quarantine in Hubei province where the epidemic started in December and economic activity there remains on hold.