Property Shares See Rising Trend in Current Market

The Chinese government is exerting its greatest effort yet in an attempt to put an end to a crisis in the massive real estate sector (land property) of the country, which has been a significant drag on the economy over the course of the past year.

Following the release by Beijing on Friday of a 16-point plan that dramatically eases a restriction on lending to the sector, shares of China’s largest property developer, Country Garden, skyrocketed by as much as 52% in Hong Kong.

Key steps include allowing banks to extend maturing loans to developers, bolstering other funding channels such as bond issuance, helping property sales by reducing the size of down payments and slashing mortgage rates, and ensuring the delivery of pre-sold properties to customers.

According to Larry Hu, chief China economist for Macquarie Group, “in essence, authorities told banks to try their best in helping the property sector. In essence, policymakers told banks to try their best in supporting the property sector.”

According to Tao Wang, chief China economist at UBS, the package of measures has marked a “turning point” for the real estate market in China. She projected that this, in conjunction with other initiatives that were introduced earlier this year, could pour more than 142 billion dollars worth of capital into the real estate market.

On Monday, Chinese developers that were listed in Hong Kong experienced an average gain of 11%, driving the overall market to higher prices. The value of shares held by Longfor Properties, another leading developer, increased by 17%, while those held by Dexin China, a developer based in Hangzhou, soared by 151%.

Many observers believe that the bailout package is the clearest signal yet from Chinese authorities that a crackdown on the sector that has been going on for the past two years has now come to an end. The government made its first effort in August 2020 to rein on excessive borrowing by developers in an effort to slow the unsustainable rise in housing prices.

The situation became significantly worse a year ago when Evergrande, which was the nation’s second-largest developer at the time, defaulted on its loans. When the real estate market began to collapse, a number of large corporations quickly moved to seek protection from their debtors. Due to a lack of available funds, construction on numerous pre-sold housing developments across the country was either slowed down or stopped entirely.

This summer, the crisis moved into a new phase when furious home buyers refused to pay mortgages on incomplete homes, which roiled financial markets and sparked fears of contagion. Since then, the authorities have been attempting to defuse the problem by pressuring banks to boost the amount of credit support they provide for developers so that they can finish projects. Additionally, in an effort to restore buyers’ confidence, regulators have lowered interest rates.

However, the property market remained in depression as prospective purchasers stayed away from the market due to the poor state of the economy and the stringent Covid limits. According to a private poll conducted by China Index Academy, a leading real estate research agency, sales by the 100 largest real estate developers in October decreased by 26.5% when compared to the same month one year prior. Their revenue has experienced a 43% decrease up to this point in the year.

In addition to China’s rigorous zero-Covid policy, which has stifled industry and consumer spending, China’s economy has been pulled down by the country’s property issues. China’s gross domestic product increased by 3.9% when compared to the same time last year, bringing the total growth rate for the first nine months to just 3%. This is far lower than the official target of 5.5% that was set in March.

Although they were pleased with the actions that were taken on Friday, analysts remained wary about the effect that it would have on buyer confidence.

Analysts from Nomura stated in a research paper that was released on Monday that “the property market has yet to show indications of recovery.” They went on to say that the most recent measures may have “little direct influence” on the number of people purchasing homes.

“Notwithstanding some latest fine adjusting, Beijing’s zero-Covid strategy will continue to impact on the property market,” they continued. “This is despite some recent fine-tuning.”

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