Shares of Chinese real estate companies rose sharply on Monday as Beijing interpreted a 16-point plan to shore up the debt-leveraged sector as a crucial pivot for Beijing that could lead to a recovery.
The Hang Seng Mainland Properties Index climbed as much as 16.3% in Monday’s morning session. Hong Kong-listed Country Garden, one of China’s largest property developers, gained more than 36%. The benchmark Shanghai Composite Index rose 0.8%, while the Hang Seng Index added 3.3%.
The moves, outlined in a policy paper from the central bank and banking regulator, include extending the year-end deadline for lenders to fix the percentage of their home loans, one of the strongest moves Beijing has made. adopted to relieve the pressure of the state . The credit crunch disrupts the industry.
Expanding People’s Bank of China’s “Collective Mortgage Management System” has the potential to affect 26 percent of China’s total bank lending, giving cash-strapped lenders and property developers a chance to breathe as they struggle for survival. real estate deflation.
According to the document, signed by the People’s Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission, and seen by the Financial Times, lenders now have an as-yet-unspecified time to limit the share of their mortgage debt at major lenders. credit at 40 each. percent of total outstanding loans and mortgages to 32.5 percent.
The extension beyond Dec. 31 is the most important in a series of 16 relief measures approved by central bank governors and the CBIRC on Nov. 11, according to the document.
“It’s a vital approach,” said Yan Yujen, director of research at the China E-house Research and Development Institute, adding that while excessive lending remained under pressure, the measures provided relief for commercial banks and paved the way for new loans. be issued.
It also comes on the heels of an expansion of a major financial aid program that could help developers sell more bonds and ease their cash flow woes. Coupled with support for an earlier 250 billion renminbi ($35 billion) bond sale program, we see this as a potential game changer for the real estate sector as the government turns to support frontline developers. Note.
“Cash-strapped developers (especially private ones) to builders, borrowers and other interested parties can now breathe a sigh of relief,” Nomura analysts wrote.
The document showed that bank loans owed to developers and trust fund loans due within the next six months can be extended by one year.
Regulators have urged banks to distinguish between credit risk for individual projects and that of developers and to negotiate with homebuyers about extending mortgage payments and credit score protection. The document showed that lenders are also being asked to raise funds to purchase unfinished projects and convert them into affordable rental housing.
These moves are designed to keep credit lines open for real estate groups and allow them to complete unfinished developments. They come at the bottom of Hundreds of thousands of Chinese mortgage holders protested In the apartments they have already paid but remained unfinished.
The package is the latest sign that Beijing is forced to reverse its sweeping real estate reforms amid fears of a credit crunch and social unrest.
It has shocked the Chinese market with a growing number of insolvencies and accelerating asset sales by developers. The pace of new lending and total social financing declined faster than expected due to slower demand.
Evergrande, China’s biggest developer that is heavily in debt and has liabilities of about $300 billion, suffered a $770 million loss last week after Forced sale of one of your most valuable assets. It also plans to put its Shenzhen headquarters up for sale with an initial auction price of $1.06 billion.
Pressure on Chinese property developers has increased in recent years after financial regulators introduced the “three red lines,” which establish debt-to-cash ratios, equity and developer assets, in a bid to shrink real estate.
However, the severity of the housing recession has raised fears of a generational slowdown in Chinese economic growth. And it increased the risk of contagion for local government financial institutions in China, which were heavily exposed to real estate lending.
The People’s Bank of China (PBoC) and the CBIRC did not immediately respond to requests for comment.
Additional reporting by Edward White in Seoul and Thomas Hill in Shanghai
