J.P. Morgan: JPMorgan surveys China’s banking sector: Developers turn more to banks for financing as margins and retail demand remain under pressure

What changes could a shift toward bank financing for developers bring?

Banks surveyed believe the new 828 rules will accelerate the shift in property development from high leverage, fast turnover and high margins to low leverage, slow turnover and low margins. Small and midsize developers and some private developers face greater operating pressure.
As projects can no longer rely on the previous presales model, bank loans may account for a larger share of developer financing. Banks will also assess credit risk more on a project-by-project basis, focusing on location, product quality and supporting facilities.
One bank believes that the supply of high-quality projects is limited and that the lead-bank system could intensify competition in the short term. Securing lead-bank status could also bring business opportunities such as mortgages.

Banks surveyed believe that stronger oversight of presale proceeds and more standardized project management will help reduce the risk of unfinished projects over the long term, lowering credit risk on development and mortgage loans. At the same time, the new rules will delay disbursement of mortgages for new homes, weighing on mortgage growth in the short term.
Banks said special-mention and overdue indicators for developer loans are currently broadly stable, and the rate of new nonperforming loan formation has slowed compared with the early stage of the cycle, but existing risks will take time to resolve.
Banks surveyed believe real estate remains in a downturn and adjustment phase, with new starts and sales continuing to decline. Home prices may be nearing a bottom, but the timing of a sustained recovery remains uncertain.

Banks surveyed primarily attributed weak mortgage growth to demand: subdued household income expectations, falling home prices and more buyers using housing provident fund loans. Transactions have improved month on month in some cities, but there is no clear turning point yet in demand for mortgages and broader retail loans.
Performance varies across cities: after the new rules, a wait-and-see mood was pronounced in Huizhou and Jiangmen, where transactions in both new and existing homes were weak. New-home supply remains tight in Shenzhen, while existing-home transactions are more active. Banks expect to place greater emphasis on mortgages for existing homes, and competition may also intensify.
Use of 40-year mortgages is limited because of their higher total interest costs. Mortgage relief measures generally require customers to apply proactively and meet eligibility conditions, and uptake is also low.

Banks surveyed expect industry net interest margins to face pressure in 2027: benefits from deposit repricing are diminishing, pricing on local government-related loans is declining, and competition for high-quality corporate clients has already driven corporate loan pricing down significantly.
One bank said growth in newly generated retail nonperforming loans has slowed somewhat, but special-mention and overdue loans are still trending upward, making it difficult to judge whether asset quality has reached a turning point. Another bank said the balance and ratio of its retail nonperforming loans in Shenzhen had risen slightly but remained manageable.

JPMorgan is broadly positive on the survey findings and favors the four major state-owned banks because of their lower retail exposure and competitive advantage in securing lead-bank roles for developer financing.
The bank is also positive on China Merchants Bank, citing its greater exposure to first-tier cities such as Shenzhen. Shenzhen’s property market is showing signs of bottoming, and the negative impact of the 828 policy is relatively mild.