CNN business in Hong Kong —
Chinese authorities are making their best effort yet to end a crisis in the country’s huge real estate sector that has weighed heavily on the economy over the past year.
Shares in China’s largest real estate developer Country Garden rose as much as 52% in Hong Kong after Beijing unveiled a 16-point plan to do so on Friday significantly relieved a crackdown on lending to the sector.
Key measures include enabling banks to roll over loans to developers, supporting property sales by reducing down payment levels and lowering mortgage rates, encouraging other funding channels such as bond issuance, and ensuring delivery of pre-sold homes to buyers .
“Essentially, policymakers were asking banks to do their best to support the real estate sector,” said Larry Hu, Macquarie Group’s chief China economist.
Tao Wang, China chief 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) invested in real estate, she estimated.
Hong Kong-listed Chinese developers rose an average of 11% on Monday, leading the broader market higher. Longfor Properties — another top developer — rose 17%, while shares of Dexin China, a Hangzhou-based developer, soared 151%.
The bailout is seen by many analysts as the strongest signal yet from the Chinese authorities that a two-year crackdown on the sector is now over. In August 2020, the government began trying to curb excessive borrowing by property developers in a bid to stem runaway house prices.
Troubles escalated last year when Evergrande – the country’s second-largest developer – defaulted on its debt. When the real estate sector collapsed, several large companies sought protection from their creditors. The liquidity crisis caused work to be delayed or suspended on many pre-sold housing projects across the country.
The crisis entered a new phase this summer as disgruntled homebuyers refused to pay off mortgages on unfinished homes, sending financial markets into turmoil and fueling fears of contagion. Since then, the authorities have been trying to defuse the crisis asking banks to increase credit support for developers so they can complete projects. Regulators have also lowered interest rates to restore buyer confidence.
However, the property slump continued as buyers pulled out of the market due to the weak economy and tight Covid restrictions. According to a private survey by the China Index Academy, a leading real estate research firm, sales of the top 100 real estate developers fell 26.5% in October from a year earlier. So far this year, their sales are down 43%.
Along with a strict zero-Covid policy that has depressed manufacturing and consumer spending, real estate woes have taken a toll on China’s economy. In the third quarter, China’s GDP grew 3.9% year on year, bringing total growth for the first nine months to just 3%, well below the official 5.5% target set in March.
While Friday’s measures were welcomed, analysts remained cautious about the impact confidence of buyers.
“The housing market has yet to show signs of recovery,” Nomura analysts said in a research report on Monday, adding that the latest measures could have “little direct impact” on stimulating home purchases.
“Beijing’s zero-Covid strategy will continue to weigh on the real estate sector despite some recent fine-tuning,” they added.