Shares of Chinese property companies rose sharply on Monday as a 16-point plan to support the debt-ridden sector was seen as a crucial pivot by Beijing that could trigger a recovery.
The Hang Seng Mainland Properties Index was up 16.3% in Monday morning session. Hong Kong-listed Country Garden, one of China’s biggest developers, gained more than 36%. The benchmark Shanghai Composite Index rose 0.8% while the Hang Seng gained 3.3%.
The measures, outlined in a central bank and banking regulator policy paper, include extending a year-end deadline for lenders to cap their ratio of loans to the housing sector, one of the most strengths of Beijing to relieve the pressure of the credit crunch. Industry.
The People’s Bank of China’s expansion of the ‘collective home loan administration system’ has the potential to affect 26% of total bank lending in China, giving cash-strapped lenders and property developers a respite while they are struggling to survive a massive property sector downturn.
According to the document signed by the PBoC and the China Banking and Insurance Regulatory Commission, and viewed by the Financial Times, lenders now have an as-yet-undetermined deadline to cap the share of their home loans outstanding with major banks at 40 percent. hundred. percent of total loans and their outstanding mortgages at 32.5 percent.
The extension beyond December 31 is the largest of a package of 16 relief measures approved by central bankers and the CBIRC on November 11, according to the document.
“This is a vital pivot,” said Yan Yuejin, research director of the E-house China Research and Development Institute, adding that while the pressure on excessive lending remained, the measures relieved commercial banks and offered them leeway to issue new loans.
They also come after the expansion of a key funding support program that could help developers sell more bonds and ease their liquidity problems. “With the previous support from the Rmb 250 billion ($35 billion) bond sale program, we believe this could mark a turning point for the real estate sector as the government shifts its focus to supporting developers in addition to support the industry,” UBS analysts said in a note.
Nomura analysts wrote, “Cash-strapped developers (especially private companies), construction companies, mortgage borrowers and other affected stakeholders can now breathe a sigh of relief.”
Bank loans and outstanding sponsor borrowings from trust funds due within the next six months can be extended for another year, according to the document.
Regulators have urged banks to distinguish between the credit risk of individual projects and that of developers and to negotiate with homebuyers over extending mortgage repayments and credit rating protection. Lenders are also encouraged to raise funds to buy up unfinished projects and turn them into affordable rental housing, the document says.
These moves aim to keep lines of credit open to real estate groups and allow them to complete unfinished developments. They come amid protests by hundreds of thousands of Chinese mortgage lenders over apartments they had already paid for but weren’t finished.
The package marks the latest sign that Beijing needs to reverse its sweeping property sector reforms amid fears of a credit crash and social instability.
The Chinese market was stunned by an increasing number of defaults and rushed asset sales by developers. The pace of new lending and total social finance declined faster than expected amid sluggish demand.
Evergrande, China’s most indebted developer with around $300 billion in debt, suffered a $770 million loss last week following the forced sale of one of its most valuable assets. It also plans to put its Shenzhen headquarters up for sale with a starting price of $1.06 billion.
Pressure has mounted on Chinese property developers in recent years after financial regulators introduced ‘three red lines’, which cap developers’ debt-to-cash, equity and asset ratios, in a bid to deleverage. the real estate sector.
The severity of the real estate slowdown, however, has raised fears of a generational slowdown in China’s economic growth. And that has increased the risk of contagion to Chinese local government financial institutions that have been heavily exposed to lending to the real estate sector.
The PBoC and CBIRC did not immediately respond to requests for comment.
Additional reporting by Edward White in Seoul and Thomas Hale in Shanghai
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