Chinese real estate stocks rose on hopes that it will be a turning point for the sector

Shares in Chinese real estate companies rose sharply on Monday as Beijing interpreted a 16-point plan to support the debt-laden sector as a crucial pivot by Beijing that could lead to a recovery.

The Hang Seng Mainland Properties index rose as much as 16.3 percent in the morning session on Monday. Hong Kong-listed Country Garden, one of the largest property developers in China, has gained more than 36 percent. The benchmark Shanghai Composite Index rose 0.8 per cent while the Hang Seng Index added 3.3 per cent.

The measures, outlined in a policy document from the central bank and banking regulator, include extending the year-end deadline for lenders to set the percentage of their loans to the real estate sector, one of the strongest moves Beijing has taken to ease pressure from the credit crunch. Industry.

The People’s Bank of China’s expansion of its “Collective Mortgage Management System” has the potential to affect 26 percent of total bank loans in China, giving cash-strapped lenders and real estate developers a chance to breathe as they struggle to survive on property. huge. sector downturn.

According to the document, which was 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 cap the portion of their mortgages owed in major banks at 40 each. . percent of the total outstanding loans and mortgages at 32.5 percent.

The extension beyond December 31 is the most significant in a batch of 16 relief measures approved by central bank governors and CBIRC on November 11, according to the document.

“It is a vital focus,” said Yan Yujen, director of research at the China Research and Development Institute E-house, adding that while over-lending remained pressured, the measures provided relief for commercial banks and cleared the way for new loans to be issued.

It also comes after an expansion of a major funding support program that could help developers sell more bonds and ease their liquidity problems. “Together with support from a previous 250 billion renminbi ($35 billion) bond sale program, we see this as potentially a turning point for the real estate sector, as the government turns to support developers at the helm of the supporting industry,” UBS analysts said in a note.

“Cash-strapped developers (especially private ones) to builders, mortgage borrowers and other stakeholders can breathe a sigh of relief now,” Nomura analysts wrote.

The document showed that bank loans due to developers and borrowings from trust funds due within the next six months can be extended for a year.

Regulators urged banks to differentiate between credit risk for individual projects and those of developers and to negotiate with homebuyers about extending mortgage payments and protecting credit score. The document showed that lenders are also invited to raise funds to purchase unfinished projects and convert them into homes for rent at affordable prices.

These moves are designed to keep lines of credit open to real estate groups and enable them to finish unfinished developments. It comes against the backdrop of protests by hundreds of thousands of Chinese mortgage holders over apartments they have already paid but left unfinished.

The package represents the latest sign that Beijing is forced to roll back its sweeping reforms in the property sector amid fears of a credit collapse and social instability.

It surprised the Chinese market with an increasing number of defaults and accelerated asset sales by developers. The pace of new loans and total social financing fell faster than expected amid slowing demand.

Evergrande, China’s most indebted company with $300 billion in liabilities, incurred a $770 million loss last week after the forced sale of one of its most valuable assets. It also plans to put its Shenzhen headquarters for sale with a starting auction price of $1.06 billion.

Pressure on China’s property developers has mounted over the past several years after financial regulators introduced “three red lines”, which set the debt-to-cash ratio, equity and assets on developers, in an effort to shrink the property sector.

However, the severity of the real estate downturn has raised fears of a generational slowdown in Chinese economic growth. And increased the risk of contagion to local government financial institutions in China, which were heavily exposed to lending to the real estate sector.

The People’s Bank of China (PBoC) and CBIRC did not immediately respond to requests for comment.

Additional reporting by Edward White in Seoul and Thomas Hill in Shanghai

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