Chinese authorities are making their biggest effort yet to end a crisis in the country’s vast real estate sector that has weighed heavily on the economy over the past year.
Shares in China’s biggest property developer Country Garden soared as much as 52% in Hong Kong after Beijing unveiled a 16-point plan on Friday that significantly facilitates a crackdown on loans to the sector.
Key measures include allowing banks to extend overdue 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 ensure the delivery of pre-sold homes to buyers.
“Essentially, policymakers told banks to do everything possible to support the real estate sector,” according to Larry Hu, Macquarie Group’s chief China economist.
Tao Wang, chief China economist at UBS, described the package of measures as a “turning point” for China’s property sector. Along with other policies announced earlier this year, it could inject more than 1 trillion yuan ($142 billion) in real estate, he estimated.
Hong Kong-listed Chinese developers rose an average of 11% on Monday, leading the broader market. Longfor Properties, another major developer, rose 17% while shares of Dexin China, a developer based in Hangzhou, soared 151%.
Many analysts see the rescue package as the strongest signal yet from Chinese authorities that a two-year crackdown on the sector has now ended. In August 2020, the government began trying to curb excessive borrowing by developers to curb house prices.
The problems escalated last year when Evergrande, the country’s second-largest developer, defaulted on its debt. When the real estate industry crashed, several major 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, sending financial markets into a tailspin and sparking fears of contagion. Since then, the authorities have tried to defuse the crisis urge banks to increase loan support to developers so they can complete projects. Regulators have also cut interest rates in an attempt to restore buyer confidence.
But the property slump persisted as buyers pulled out of the market due to the weak economy and tight Covid restrictions. In October, sales of the 100 largest real estate developers fell 26.5 percent from a year ago, according to a private survey by China Index Academy, a leading real estate research firm. So far this year, its sales have fallen by 43%.
Along with a strict zero-Covid policy that has reduced manufacturing and consumer spending, real estate woes have dragged down China’s economy. In the third quarter, China’s GDP grew 3.9% from a year earlier, putting overall growth in the first nine months at just 3%, well below the official target of 5.5% established in March.
While welcoming Friday’s measures, analysts remained cautious about the impact it would have buyer confidence.
“The housing market has yet to show signs of recovery,” Nomura analysts said in a research note on Monday, adding that the latest measures may have “little direct impact” on stimulating buying houses.
“Beijing’s Zero-Covid strategy, despite some recent adjustments, will continue to weigh on the real estate sector,” they added.