Chinese authorities are making their biggest effort yet to end a crisis in the country’s massive real estate sector that has weighed heavily on the economy over the past year.
Shares in China’s biggest property developer Country Garden jumped as much as 52% in Hong Kong after Beijing unveiled a 16-point plan on Friday that significantly eases the industry’s lending crackdown.
Key measures include allowing banks to extend non-performing loans to developers, supporting property sales by reducing the size of down payments and lowering mortgage rates, boosting other funding channels such as bond issues and ensuring pre-sold homes are delivered to buyers .
“Essentially, policymakers have told banks to do their best to support the property sector,” according to Larry Hu, chief China economist for Macquarie Group.
Tao Wang, chief China economist at UBS, described the package of measures as a “turning point” for China’s property industry. Together with other policies announced earlier this year, it could inject more than 1 trillion yuan ($142 billion) into real estate, he estimated.
Hong Kong-listed Chinese developers rose an average of 11 percent on Monday, leading the broader market higher. Longfor Properties – another leading developer – jumped 17%, while shares of Dexin China, a Hangzhou-based developer, soared 151%.
The rescue package is seen by many analysts as the strongest signal yet from Chinese authorities that a two-year crackdown on the industry is now over. In August 2020, the government began trying to curb excessive borrowing by developers to curb skyrocketing house prices.
The problems escalated last year when Evergrande – the country’s second largest developer – defaulted on its debt. As the real estate sector collapsed, several large companies sought protection from their creditors. The cash crunch meant work on many pre-sold housing projects across the country was delayed or suspended.
The crisis entered a new phase this summer when angry homebuyers refused to pay mortgages on unfinished homes, roiling financial markets and sparking fears of contagion. Since then, authorities have tried to defuse the crisis by urging banks to increase loan support to developers so they can complete projects. Regulators also cut interest rates in an effort to restore buyer confidence.
However, the property slump remained as buyers pulled out of the market due to the weak economy and severe Covid restrictions. In October, sales by the top 100 property developers shrank 26.5 percent from a year earlier, according to a private survey by China Index Academy, a leading property research firm. So far this year, their sales are down 43%.
Along with a strict zero-Covid policy that has squeezed manufacturing and consumer spending, real estate woes have weighed on China’s economy. In the third quarter, China’s GDP rose 3.9 percent from a year earlier, putting overall growth for the first nine months at just 3 percent, well below the official target of 5.5 percent set in March.
While they welcomed Friday’s measures, analysts remained cautious about the impact it would have on shopper confidence.
“The property 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 immediate impact” on boosting housing markets.
“Beijing’s zero-Covid strategy, despite the latest improvements, will continue to weigh on the real estate sector,” they added.
