Curbs: Developers stare at cash woes

applied to the housing market.

“For third- and fourth-tier cities with excessive pressure of reducing inventories, and for buyers with solid demand (people who migrated from rural areas to urban areas), favorable credit financing policies will be given as a support,” saidWang.

For homebuyers, this could mean more favorable policies for seeking mortgage loans in lower-tier cities, to get more discounts on benchmark borrowing rates, or lower down payment requirements for buying their first home.

In Shanghai and Beijing, and some other key cities, financing has been tightened for homebuyers as most lenders have pushed up interest rates for mortgage loans by up to 10 percent.

According to Xing Ziqiang, chief economist with Morgan Stanley in the China market, Chinese homebuyers used more credit financing to buy homes in the last two years.

Very often, a buyer pays some 50 percent of the home price toward down payment and borrows another 50 percent from lenders.

“Although homebuyers in China have been accelerating leverage from banks when buying properties, the level is far from risky,” said Xing.

For developers, tighter policy environment in top-tier cities, and the pressure of reducing inventories in lowertier cities, could mean more pressure on their cash flow.

A research note from Essences Securities said that shrinking sales in top-tier cities could mean slower cash income for developers, as that was the main source of cash in the past fewyears.

It takes time for lower-tier cities to transfer inventory into cash income. For big companies that have diversified their development portfolios, the pressure is under control. For smaller ones, they need to come up with more measures to accelerate sales to maintain a safe cash flow, the note said.

According to the GovernmentWork Report, the administration aims to complete 6 million units under shanty town renovations, improve public services and facilities for people who live in affordable housing projects, and build affordable rented housing projects.

“This is also an opportunity for companies that are involved in urban renovation projects. For developers and companies that have capacities to join public-private partnership or PPP programs, renovation projects are good channels to diversify investment portfolios,” said a research note from Zhongtai Securities.