Beijing last week rolled out a series of measures aimed at relieving the pressure on cash-strapped developers, including development and bond financing, as well as loan-repayment extensions.
Investors embraced the 16-point plan as China’s most emphatic effort yet to turn around a market that saw a wave of bond defaults among developers following a crackdown on their highly leveraged finances.
The slump sparked a mortgage payment strike by angry homebuyers over scores of unfinished housing projects, hammering confidence in a market reeling from the impact of repeated lockdowns and other curbs under Beijing’s strict zero-Covid policy.
Another nationwide outbreak of the virus this month, including in southern manufacturing hub Guangzhou, could mean more trouble ahead for home sales, which are already down about 20% this year, observers say.
China’s new home prices last month fell at their fastest pace in over seven years.
“While the recent measures to support the property sector will surely boost financing for developers, that impact could well be offset by a further decline in sales, which may mean little improvement for the property sector in November,” Gavekal Dragonomics said in a report Tuesday.
And there are more signs that potential property investors have turned risk-averse. Some 13.28 trillion yuan (US$1.8 trillion) was plugged into household savings during the first nine months of the year, including 3.8 trillion yuan flowing into conservative time deposits, well above the average over the past two years, according Beijing-based think tank China Finance 40 Forum.
Still, the package – which came after China wrapped up a key leadership meeting last month – was a sign for some investors that Beijing is willing to ease tightening measures on a market that accounts for about 20% of China’s economy and is on track for its weakest annual growth rate in decades.
In the past week, the Hang Seng Properties Index has climbed by more than 27%, after China’s National Association of Financial Market Institutional Investors announced that it would provide 250 billion yuan in funds via bond issuances for private enterprises, including distressed developers.
Since then, shares of Hong Kong-listed developer Longfor Group, which after the announcement got a green light to issue 20 billion yuan worth of debt, have soared about 60%.
The People’s Bank of China also pledged supplementary lending for September and October totalling 262 billion yuan, but it has not released details about how the loans will be allocated. On Tuesday, China’s central bank said that it has injected an additional 320 billion yuan in mid- to long-term liquidity through supplementary lending and re-lending facilities since November.
But Nomura said the moves may “have little direct impact on stimulating home purchases”, citing an earlier lending programme between 2015 to 2018. The measures outlined by the central bank and the China Banking Insurance Regulatory Commission are “perhaps a signal that the Volcker-style tightening for the property sector is over”, the Japanese investment bank said Monday.
But “the property sector has yet to show signs of recovery … Beijing’s zero-Covid strategy, despite some latest fine-turning, will continue to weigh on the property sector,” it added, referring to the recent easing of China’s virus controls.
Barclays warned that home sales in China could drop by another 10% next year.
“The government’s comprehensive package does mark an all-out effort to shore up the ailing property market,” it said this week. “However, although it will address the liquidity crisis of developers and help improve homebuyer confidence, we do not think it is a game-changer for buyers’ purchase plans and developers’ investment plans.”
Joyce Bing, investment manager for fixed income in Asia at UK-based asset manager Abrdn, said the relief package “marks the turning point for the real estate sector”, pointing to a rally in Chinese developers’ dollar-denominated bonds.
How the measures are implemented will also be crucial and “whether the right incentives are in place for the key stakeholders to take action”, said Alec Jin, investment director for Asian equities at Abrdn. “We hope to see the release of more details around this, which will add to our conviction on the effectiveness of the policy.”
Morningstar analysts said they hope to see the promised package “materialise over the next six months”.
“We think the initiatives are supportive of the share prices in the near term,” Morningstar said. “But we maintain our view that we need to see a return of homebuyers’ confidence to support contracted sales, as this is essential for a durable improvement in the developers’ credit environment.”