China's property markets are having a down cycle. Photo: Asia Times files / iStock

Construction work on several unfinished Chinese residential property projects has resumed with local government support but it’s unclear when the flats will be delivered to homebuyers and whether the swinging of hammers marks a turning point for the crisis-ridden sector.

Big property developers including Evergrande Group, Greenland Holdings and China Aoyuan Group have recently restarted unfinished property projects in Jiangxi, Henan and Hubei, the Financial News, a media arm of the People’s Bank of China (PBoC), reported on July 16.

The China Banking and Insurance Regulatory Commission (CBIRC) told its media unit, the China Banking and Insurance News, on July 17 that it would encourage new immigrants and young residents in urban areas to buy homes to maintain order in property markets. It said banks should take the initiative to help resolve property developers’ financial needs.

Hong Kong-listed Chinese property developers and banks’ shares rose today (July 18) on the CBIRC and PBoC’s weekend announcements.

KWG Property increased 10.9% to close at HK$1.73 today while R&F Properties rose 9% to HK$1.81. China SCE Property surged 7.35% to 73 HK cents while Agile Group jumped 6.9% to HK$2.62.

Postal Savings Bank of China’s shares rose 4.4% to HK$5.2 while China Merchants Bank increased 3.4% to HK$42.75. Industrial and Commercial Bank of China, the world’s largest bank, jumped 3% to HK$4.13. The Hang Seng Index, a benchmark of the Hong Kong stock market, gained 2.7%.

However, some Chinese media websites said resuming construction work would only be meaningful if developers set and met deadlines for completion. They said Evergrande had announced last October it would resume construction work on many of its stalled projects but in reality only a few workers were deployed to each of the sites.

Suppliers and contractors are unwilling to provide services to heavily-indebted property developers unless they are paid on a monthly basis.

Chinese media reports said last week that homebuyers of at least 150 unfinished property projects stopped mortgage payments because developers failed to deliver their apartments.

They said highly-geared property developers faced shortages of funds to continue their construction projects after financial regulators announced in July 2020 “three red lines” that barred them from taking out more loans.

Property developers also suffered from a decline in sales last year due to the slowing Chinese economy.

Workers in front of the Evergrande headquarters in Shenzhen in southeastern China on September 26, 2021. Photo: AFP / Noel Celis

After meeting with Chinese financial and housing officials, local banks said in separate statements that the risks of the mortgage strike were minor and manageable as their non-performing mortgage loans related to unfinished property projects accounted for only about 0.01% of all mortgage loans.

The Financial News said in a report on July 16 that it was very important to resume construction on unfinished property projects.

“Due to the joint efforts of property developers and government departments, some of the residential projects that were previously halted have resumed their construction works while some others have announced plans to resume their works,” said the report.

On July 13, some banking executives visited a construction site that was said to have previously stopped work in Ganzhou in Jiangxi province, according to the report. They found that the construction work actually continued with about 80 to 100 workers deployed to the site.

The report said the Ganzhou city government decided last month to acquire the unfinished parts of the project from Greenland and return 400 million yuan (US$59 million) of its land sales revenue to the developers to complete the project.

On July 6, local officials and homebuyers of Mingmen Real Estate in Zhengzhou in Henan province held a meeting.

Zhongrong International Trust Co Ltd, the ultimate owner of the project and a Suzhou-based financial institution, agreed to inject money to resume construction. The property developer Henan Shenghong Real Estate Co, Zhongrong International Trust and local government would form a task force to monitor the use of funds, according to the reports. The construction work will be resumed in August, the report said.

The CBIRC said on July 17 that it would work with the PBoC and the Ministry of Housing and Urban-Rural Development, as well as local governments, to ensure that property developers finish their projects and deliver apartments to homebuyers.

The banking regulator said Chinese banks must fulfill their duties by following market rules and meeting legal requirements while taking social responsibility to help ensure the delivery of flats. It said banks should increase their communication with customers, fulfill their different needs and protect their legal rights.

The CBIRC also said banks should effectively meet the fundraising demands of property developers and support their merger and acquisition plans.

Some Chinese media said the road for most property developers to resume their construction works would be bumpy.  

China Newsweek, a magazine run by the state-owned China News Service, said in a report that many property developers, including Evergrande and Green Group, faced rising pressure to make debt payments this year but it was very difficult for them to raise funds in capital markets or boost property sales in a moribund market.

Cranes have stopped swinging on various Chinese property projects. Photo: iStock

The report said Evergrande had promised to resume construction of its projects last October but only 55% of them had returned to a normal building pace as of the end of March this year while 40% were partly resumed.  

A supplier, who requested anonymity in the report, said about 80% of Evergrande-related projects in Henan had their construction works partly resumed. He said the construction sites seemed to have a lot of people but only a few were actually working.

A contractor surnamed Zhang said she was asked by a state-owned property developer to quote a price for the construction work of its unfinished projects. Zhang said she did not give a response as the property developer could settle the payment only after eight to 12 months.

Another contractor said his company tried to help Evergrande finish its projects as it was the only way that it could get back unpaid fees of 16 million yuan. However, he added that his company required Evergrande to settle payments on a monthly basis.

Read: China says mortgage strike won’t cause systemic risk

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