Shares and bonds in Chinese real estate companies rose sharply on Monday as a sweeping plan by Beijing to support the property market was interpreted as a critical moment in arresting the decline of the debt-ridden sector.
The Hang Seng Mainland Properties index closed 13 per cent higher in Hong Kong. Shares in Country Garden, one of China’s biggest developers, gained more than 36 per cent, while several of the group’s dollar bonds surged nearly 50 per cent.
Details of the 16-point plan from the People’s Bank of China and the China Banking and Insurance Regulatory Commission were reported by the Financial Times on Sunday.
The key changes include extending a year-end deadline for lenders to cap their ratio of property sector loans, and the extension of outstanding trust borrowings. The changes, which could affect more than a quarter of China’s total banking loans, mean lenders now have beyond the end of this year to cap the portion of their outstanding property loans.
The extension was viewed as one of the strongest moves by Beijing to relieve pressure from the credit crunch roiling the industry, by giving lenders and cash-strapped real estate developers breathing space as they fight to survive the country’s historic property sector downturn.
The package marks the latest sign of Beijing backpedalling on its property sector reforms amid fears of a credit crash and social instability. China’s property sector meltdown has spread from developer defaults and slumping apartment sales to batter the coffers of local governments and risk contagion across the financial sector. There have also been signs of rising social instability after hundreds of thousands of would-be apartment owners this year boycotted mortgage payments across nearly 100 cities.
One bond trader for a US investment bank in Hong Kong said that while the joint statement signalled more policy easing in the aftermath of President Xi Jinping securing an unprecedented third five-year term in power last month, “its effectiveness remains to be seen”.
“It said property developers’ outstanding bank loans and trust borrowings due within the next six months can be extended for a year while the repayment on their bonds can also be extended. However, the condition of such an extension is based on banks’ assessment of the solvency of the debt,” the trader said.
The Chinese market has been stunned by a rising number of defaults and hurried asset sales by developers over the past year. The pace of new loans and total social financing has also retreated faster than expected, amid sluggish demand.
A Hong Kong-based bond trader with a Chinese state bank pointed out that the rebound in developer bonds followed a bout of heavy selling, and added that the rebound was limited to those with investment-grade ratings.
Still, the new plan dovetails with the expansion of a programme to help developers sell more onshore renminbi bonds and ease their liquidity woes.
Also on Monday, the banking regulator said developers could have access to more money held in presale accounts with guarantee letters from banks, further easing liquidity pressure on developers.
“Together with the previous Rmb250bn ($35bn) bond sale programme support, we view this may mark a turning point for the property sector, as the government is turning to support developers on top of supporting industry,” said UBS analysts in a note.
Citi said the changes were akin to “blessed rains” after a long drought. As the first comprehensive set of measures from the PBoC and CBIRC the plan “could be a game-changer . . . unlike previous piecemeal steps”, the bank’s analysts said.
Nomura analysts said: “Cash-strapped developers (especially private ones) construction companies, mortgage borrowers and other related stakeholders can now breathe a sigh of relief.”
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