Experts: China will continue housing stance

Country to honor principle of 'houses are for living in, not for speculation'

China is expected to continue to maintain its housing policy stance based on the principle that houses are for living in, not for speculation, analysts said.

"Currently, the regulatory environment for China's real estate sector still remains strict. The main purpose of regulations is to stick to the principle that houses are for living in, not for speculation and to ensure sound and stable development of the sector," said Gong Tianxuan, managing director of the corporate rating department of China Chengxin International Credit Rating Co Ltd, also known as CCXI.

Although Chinese banks have accelerated the issuance of property development loans and home mortgage loans since October under the guidance of the People's Bank of China, the central bank, and the China Banking and Insurance Regulatory Commission, the growth of these two types of loans is actually an offset against previous declines in the growth of such loans earlier this year, Gong said at Moody's & CCXI 2022 Credit Outlook Conference on Thursday.

"Any easing measures are just temporary measures, which are taken to prevent rapid declines in property prices and floor space of commercialized buildings sold," said Cedric Lai, vice-president and senior analyst at the corporate finance group of Moody's Investors Service.

"The Chinese government has launched policies to strictly control leverage levels of property developers, maintain financial stability in the banking sector, and reduce the role real estate investment plays in driving economic growth. We expect that China will continue to maintain long-term stability of the real estate sector through mitigation of risks associated with the housing market," Lai said.

Moody's estimates financing channels for property developers will remain tight in 2022.

At this time, the direct exposure of Chinese financial institutions to property developers is limited, said Yulia Wan, vice-president and senior analyst at the financial institutions group of Moody's. Financial institutions' property development loans, direct trust loans and bonds accounted for around 21 percent of the total liabilities of property developers.

"Land and property development loans accounted for only 6.2 percent of gross loans at the end of September. The growth of these loans has been slowing since 2018 and will remain low in 2022. Most of these loans are collateralized, mitigating asset risks of financial institutions," Wan said.

Large State-owned commercial banks have lower exposure to property developers than joint-stock commercial banks and regional banks because of more diversified asset portfolios. Corporate bonds, trust plans, as well as wealth and asset management products－the primary sources of exposures to property developers－took a smaller share of large banks' asset portfolios. In addition, large banks have stronger risk mitigation capabilities, she said.

However, as the property sector and its upstream and downstream supply chains contribute about 25 to 30 percent to China's GDP, a further weakening of the property market may cause a decline in GDP growth, a reduction in real estate transactions and a drop in housing prices, undermining the credit standing of banks, she said.

Moody's outlook on China's banking sector remains stable next year. Despite increasing asset risks, banks benefit from adequate liquidity in the system and subsiding deposit competition. Low funding and operating costs will offset pressure from low asset yields and stabilize the net interest margin of banks.

Besides, slower risk-weighted asset growth and more stringent capital requirements support capitalization of banks, the credit rating agency said in a report released on Tuesday.