Chengdu Becomes First China City to Ease Rules for Builders

(Bloomberg) -- A Chinese city rolled out a series of easing measures to boost liquidity at property developers, becoming the first major local government to address a cash crunch engulfing the real estate industry. 

Chengdu, the capital of the southwestern province of Sichuan with a population of about 21 million, will accelerate approvals for home sales and property loans as well as ease restrictions on using proceeds from pre-sales, according to a statement by the local housing authority late Wednesday. 

“Chengdu is the first city authority to call for faster property-related loans in a clear official statement,” said Yan Yuejin, research director at Shanghai-based E-house China Research and Development Institute. “We may see other initiatives to press banks on faster mortgages soon.”

The move to boost liquidity in the beleaguered building sector comes as China’s home slump deepens, adding pressure on authorities to stabilize an industry that’s estimated to account for almost a quarter of economic output. 

Some cities last week relaxed rules for land sales -- a key revenue source for municipalities -- after cash-strapped developers became reluctant to bid. China’s State Council is calling on local governments to sell more special bonds this year to boost investment amid a slowdown in the economy.

Shares of Chinese developers rose. China Evergrande Group climbed as much as 6.1% in Hong Kong, while Chengdu-based Sichuan Languang Development gained as much as 2.3% in mainland trading. 

New-home values in Chengdu declined 0.6% in October from a month earlier, the widest slump in four and a half years, official data showed. 

Regulators are fine-tuning their long-running crackdown on the property sector after a credit crunch at Evergrande and other junk-rated developers began spreading to higher-rated peers. In late September, the central bank urged financial institutions to help local governments stabilize the rapidly cooling housing market and ease mortgages for some homebuyers. Official media reported in recent weeks that faster mortgages are already on the way.

“It shows how the city government cares about developers’ liquidity risks,” said Pan Hao, a property analyst at KE Holdings Inc., adding that Chengdu is looking at different measures to prevent developers’ cash risk from blowing up. The policies will help to get revenue flowing at quality developers, SWS Research analysts including Yuan Hao wrote in a note.

Premier Li Keqiang chaired a meeting of the State Council, China’s cabinet, on Wednesday, urging local governments to execute more public works projects at the beginning of next year, the official Xinhua News Agency reported. Regional governments should step up project preparation, facilitate the launch of works that are mature, and make reasonable requests for special bond quotas next year, according to Xinhua. 

Here are some of Chengdu’s key measures allowing developers to boost cash:

• The housing authority vowed to shorten the time for compulsory pre-sales procedures by at least a third
• Developers will be able to use proceeds from pre-sales if they meet certain construction progress
• Chengdu will work with financial institutions to increase credit quotas for developers and accelerate loan approvals
• The city said it will coordinate with banks to extend property development loans for key developers

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With assistance from Bloomberg