China’s property shares surged today thanks to a new financial support policy that extended some key measures from a rescue package introduced last November. This move aimed to stabilize liquidity in the troubled sector and alleviate immediate financial burdens on property developers. While the market welcomed these efforts, experts emphasize the need for additional measures to address the ongoing cash crisis in the industry.
The Chinese property sector has faced severe challenges, with numerous company defaults triggered by the non-repayment issues of China Evergrande Group, the world’s most heavily indebted property developer, since mid-2021. Despite the aggressive support measures implemented by policymakers, many private firms continue to struggle to access fresh capital, highlighting the urgency for more comprehensive solutions.
To address the situation, the central bank announced on Monday that developers would have an extra year to repay loans due in the current year. However, this extension does not fully resolve the cash crunch faced by the sector, as developers still require additional support. Consequently, the market anticipates further stimulus measures to be introduced in the near future.
As of 0316 GMT today, Hong Kong’s Hang Seng Mainland Properties Index experienced a significant 1.8% increase, while China’s CSI 300 Real Estate Index saw a modest 0.1% rise. Notably, companies such as Sunac China, Logan Group, and KWG Group, listed in Hong Kong, emerged as top gainers with impressive increases of 4% to 5%.
To alleviate the liquidity crisis within the property sector, the People’s Bank of China (PBOC) had previously implemented 16 measures in November last year. These measures included loan repayment extensions to provide relief to financially strained developers. The latest announcement from the PBOC allows loans due this year to be repaid by the end of 2024. Additionally, the risk classifications of loans issued to support the completion of ongoing projects before the end of 2024 will not be downgraded during the loan term. Such loans are estimated to constitute 30% to 40% of developers’ total debts, thus providing some short-term liquidity support.
Nevertheless, industry analysts caution that while these measures offer partial relief, they do not entirely solve the liquidity challenges faced by developers. In fact, the CGS-CIMB Securities brokerage states that these measures alone are insufficient to address the broader liquidity issues plaguing the sector. On the other hand, Nomura believes that the recent policy support, though akin to a temporary solution, is unlikely to significantly boost property sales. The weak sales figures observed over the past few months require more comprehensive actions to restore home buyers’ confidence.
In summary, the recent surge in China’s property shares can be attributed to the extension of financial support policies aimed at bolstering liquidity in the sector. While these measures offer temporary relief, additional steps are necessary to address the ongoing cash crunch faced by developers. Market analysts anticipate further stimulus measures to be introduced in the near future.