Chinese authorities are making every effort to end a crisis in the country’s vast real estate sector that has weighed heavily on the economy over the past year.
Shares of China’s biggest property developer, Country Garden, soared as much as 52% in Hong Kong after Beijing unveiled a 16-point plan on Friday that considerably relieves a crackdown on lending to the sector.
Key measures include allowing banks to provide maturing loans to developers, supporting property sales by reducing down payments and lowering mortgage rates, boosting other funding channels such as bond issues, obligations and to guarantee the delivery of pre-sold homes to buyers.
“Essentially, policymakers told banks to do their best to support the property sector,” said Larry Hu, chief China economist at Macquarie Group.
Tao Wang, chief China economist at UBS, described the package of measures as a “turning point” for China’s real estate sector. Along with other policies announced earlier this year, it could inject more … than 1 trillion yuan ($142 billion) in real estate, she estimated.
Hong Kong-listed Chinese developers jumped 11% on average on Monday, leading the broader market higher. Longfor Properties – another top developer – jumped 17% while shares of Dexin China, a Hangzhou-based developer, soared 151%.
The bailout is seen by many analysts as the strongest signal ever from Chinese authorities that a two-year crackdown on the sector is now over. In August 2020, the government began trying to rein in excessive borrowing by developers to curb runaway property prices.
The problems deepened last year when Evergrande – the country’s second largest developer – defaulted on its debt. As the real estate sector collapsed, several large corporations sought protection from their creditors. Lack of cash has caused work to be delayed or suspended on many pre-sold housing projects across the country.
The crisis entered a new phase this summer when angry homebuyers refused to pay mortgages on unfinished homes, rattling financial markets and sparking fears of contagion. Since then, the authorities have been trying to defuse the crisis urging banks to increase loan support for developers so they can complete their projects. Regulators have also cut interest rates in a bid to restore buyer confidence.
But the real estate crisis persisted, with buyers pulling out of the market due to the weak economy and tough Covid restrictions. In October, sales at the top 100 property developers contracted 26.5% from a year ago, according to a private survey by China Index Academy, a leading real estate research firm. So far this year, their sales have dropped 43%.
Along with a strict zero Covid policy that has reduced manufacturing and consumer spending, real estate issues have weighed on the Chinese economy. In the third quarter, China’s GDP grew 3.9% from a year earlier, bringing overall growth for the first nine months to just 3%, well below the official target of 5.5% set in March.
While welcoming Friday’s measures, analysts remained cautious about the impact it would have on buyer confidence.
“The housing market has yet to show signs of recovery,” Nomura analysts said in a research report on Monday, adding that the latest measures may have “little direct impact” on boosting home purchases. .
“Beijing’s zero Covid strategy, despite some final tweaks, will continue to weigh on the real estate sector,” they added.