Chinese property stocks soar on hopes of a turning point for the sector

Shares in Chinese real estate companies rose sharply on Monday as the 16-point plan to support the debt-ridden sector was interpreted as a crucial pivot by Beijing that could trigger a revival.

The Hang Seng Index of Mainland Properties rose as much as 16.3 percent in the morning session on Monday. Hong Kong-listed Park State, one of China’s largest developers, gained more than 36 percent. The benchmark Shanghai composite index rose 0.8 percent while the Hang Seng added 3.3 percent.

The measures, outlined in a policy document from the central bank and banking regulator, include extending a year-end deadline for lenders to close property sector lending ratios, one of the strongest moves by Beijing to relieve pressure from credit crunch roiling the industry.

The People’s Bank of China’s extension of the “collective management system for real estate loans” could potentially affect 26 percent of China’s total banking loans, leaving lenders and real estate developers strapped for cash as they struggle to survive the massive downturn. property sector decline.

According to a document signed by the PBoC and the China Banking and Insurance Regulatory Commission, and seen by the Financial Times, lenders now have an unspecified amount of time to close the portion of property loans outstanding in large banks at 40 per cent of total loans and outstanding mortgage is 32.5 percent.

The extension beyond December 31 is the most important of a set of 16 relief measures agreed by the central bank and the CBIRC on November 11, according to the document.

“It is an important pivot,” said Yan Yuejin, research director of E-house China Research and Development Institute, adding that while the pressure on excessive lending remains, the measures provide relief for commercial banks and ease to issue new loans.

It also comes after the expansion of a key funding support program that could help developers sell more bonds and ease their liquidity difficulties. “Together with the Rmb250bn ($35bn) support of the previous bond sale program, we see this could mark a turning point for the property sector, as the government is supporting developers above supporting industries,” UBS analysts said in a note.

Nomura analysts wrote: “Developers with money (especially private) construction companies, mortgage borrowers and other stakeholders can now breathe a sigh of relief.”

The developer’s outstanding bank loan and loan from the trust fund that is paid in the next six months can be extended for a year, the document shows.

Regulators urged banks to differentiate between the credit risk of individual projects and developers and negotiate with home buyers to extend mortgage payments and credit score protection. Lenders are also encouraged to raise funds to buy unfinished projects and turn them into affordable rental homes, the document shows.

This move is designed to keep credit lines open for real estate groups and enable them to complete incomplete developments. They come against the backdrop of protest by hundreds of thousands of Chinese mortgage holders more apartments that they have paid but left unfinished.

The package marks the latest sign Beijing has had to backtrack on reforms to its property sector amid fears of a credit crash and social instability.

The Chinese market was shocked by the rising number of defaults and the rush of asset sales by developers. The pace of new lending and total social financing has fallen faster than expected amid weak demand.

Evergrande, China’s most indebted developer with liabilities of around $300bn, lost $770m last week after forced sale of one of the most valuable assets. It also plans to put its Shenzhen headquarters up for sale at an initial auction price of $1.06bn.

Pressure has been mounting on China’s property developers over the past few years after financial regulators introduced the “three red lines”, which limit the ratio of debt to cash, equity and assets of developers, in an attempt to destabilize the property sector.

The severity of the property downturn, however, has sparked fears of a generational slowdown in China’s economic growth. And that has increased the risk of contagion spilling over to China’s local government financial institutions which are heavily exposed to property sector loans.

The PBoC and CBIRC did not immediately respond to requests for comment.

Additional reporting by Edward White in Seoul and Thomas Hale in Shanghai

Leave a Reply

Your email address will not be published. Required fields are marked *