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China property
BusinessBanking & Finance

China property defaults won’t stop banks lending to cash-strapped developers, says Goldman Sachs report

  • Beijing has been calling on local governments and banks to relieve an industry-wide liquidity crunch and boost homebuyer sentiment
  • ‘Many of the losses have already been taken,’ the report points out

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‘We do not believe that improving credit supply to the property developers in and of itself will be sufficient to revive the sector,’ Goldman said in the report. Photo: Reuters
Yuke Xiein Beijing
China’s property downturn and recent slew of defaults are unlikely to rattle overseas creditors or deter domestic banks from channelling resources towards cash-strapped developers, according to Goldman Sachs.
The share of China’s high-yield property bonds in the Asian market has declined by over 40 per cent in the past three years to account for less than 6.5 per cent of the total market value, the US bank said in a said in a February 6 report. That number was 50 per cent at the end of 2020.

“Many of the losses have already been taken,” the report pointed out, noting that over US$130 billion worth of offshore high-yield bonds have been in default in the last three years. That is on top of 160 billion yuan (US$22.5 billion) of onshore bond defaults.

Moreover, the losses and defaults tied to the property crisis have not stopped Chinese lenders from supporting the country’s struggling developers. Bank lending to the sector, as measured by loans outstanding, expanded by 7.2 per cent at the end of 2023 compared to the end of 2021.

“This highlights policymakers’ focus on addressing the ‘flow’ credit issues, directing much of the credit easing towards financing for the completions of pre-sold but uncompleted homes,” wrote Kenneth Ho, a managing director at Goldman.

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China’s larger banks have contributed to close to three quarters of new property loans, and bank lending to the developers is expected to grow 3.9 per cent year on year in 2024, the report added.

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