HONG KONG/BEIJING - China's efforts to clear massive inventory by turning unsold homes into affordable housing are unlikely to help cash-strapped developers due to the programme's limited size and potentially low prices, analysts and developers say.
Xintangzhen, a town in Guangzhou, issued a notice on May 30, the first local government to do so after the support package, to purchase "suitable housing stock" for resettlement housing. A senior executive at a private developer in default said his firm would be interested to apply if other cities make similar offers as Xintangzhen, but he expects offers to be low and insufficient to cover construction loans."If it's not even enough to cover the development loan, how do we repay the loan? The lending bank would not agree either," said a senior official at a Shanghai-based developer, who declined to be identified due to the sensitivity of the matter.
Gavekal Dragonomics estimates that at average market prices, 500 billion yuan in purchases would pay for 12% of housing inventories, or 20% if bought at a discount. Banks can borrow from the 300 billion re-lending facility at 1.75% interest to finance 60% of the loans they offer to SOEs. The central government's support though has drawn more visitors to top-tier cities following the latest stimulus package that includes lowering down payment and removal of mortgage rate floors, analysts and developers say.
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