China’s financial regulators are considering allowing banks to provide unsecured liquidity loans to debt-piling property developers for the first time.
Earlier this week, it was reported that the Chinese government was aiming to provide funding to the sector, which responded positively as share prices of property developers saw a sharp rise for the first time in ages. 50 real estate firms were said to be eligible for financing.
However, JPMorgan said that Chinese banks providing unsecured loans to qualified developers would be a “risky move”. The firm noted that the implementation of such regulation would be challenging, as banks could circumvent such guidance due to credit risk concerns.
JPMorgan also speculated that if the measures were to be enforced by the government, it would be negative for banks as it raised concerns about national service risk as well as credit risk in the medium term.
WIth this development, JPMorgan suggested investors to short banks and long property if the measures were to be implemented as reported. The firm expected this positive news to support property shares in the short-term, but may not be sustainable.