(Yicai) March 13 -- Despite the Chinese government's whitelist, commercial banks remain prudent in giving out loans for real estate projects, according to insiders.

Although local governments have been quite enthusiastic about the program, commercial banks are very cautious and take a lot of time to review the applications so the number of approvals so far is much smaller than the number of candidates, multiple market insiders said to Yicai. 

The program involves local governments as after evaluating projects suggested by developers, they sent the names of the first batch of recommended undertakings to banks late last month. The banks are expected to consider risk and approve projects even from defaulted developers in order to help them finish residential projects that are already prepaid by buyers.

So far projects included in the whitelist, a mechanism introduced less than two months ago, have managed to borrow CNY200 billion (USD27.8 billion). Almost 280 cities completed their work for the first batch, adding around 6,000 residential projects to the list as of Feb. 29, according to official data.

Low Approval Rate

An insider at a troubled real estate developer said to Yicai recently that the company submitted over 100 projects to join the group but has not yet gained any financing.

Firms with operational difficulties need to make a bigger effort than their peers as financial institutions tend to be extremely cautious about issuing loans to debt-laden companies even though local governments do not discriminate against them, the insider added.

An executive at a distressed real estate developer based in southeastern China's Fujian province said that the firm boasts more than 30 projects that are included in the whitelists nationwide, but not a single loan has been received yet.

An insider from another heavily indebted property developer said that more than 60 projects of the firm have applied for a loan but as of now, only a handful of them have been given the go-ahead by the bank.

An insider from Country Garden Holdings said that the Guangdong province-based industry behemoth that has defaulted on its debts has added almost 220 projects to the whitelist and as of March 3, a number of them have been given the green light to get financed.

The funding landscape has been grim this year, partly due to the long Chinese New Year holiday. Last month, 65 large real estate developers merely garnered CNY21.9 billion (USD3 billion) in bank loans, the lowest single-month sum since 2021, and a 49 percent slump from a year ago, according to research institute CRIC.

Optimizing the Whitelist 

However, insiders remain optimistic that the program will be refined.

"As the whitelist mechanism gradually matures, developers’ communications with banks are becoming smoother and the corresponding review is also sped up," a source from a real estate company said, adding that the firm was already expecting banks to have a relatively prudent attitude toward the sector.

The same person added that regulators require lenders to report to financial authorities the reasons why they turn down a project on the whitelist, which makes the communication between banks and developers more transparent.

Moreover, some Chinese provinces urge municipal governments to manage the whitelist dynamically so that projects that are later found to be unqualified are removed from the list to increase banks' confidence in the program, the person concluded.

Editors: Tang Shihua, Emmi Laine