China unveils radical measures to save the real estate sector

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Chinese authorities have unveiled sweeping measures to save the country’s ailing real estate sector, as regulators seek to make up for years of tough pandemic measures and a real estate crackdown that have stalled the world’s second-largest economy.

The banking regulator and central bank issued a 16-point set of internal guidelines on Friday to promote the “stable and healthy development” of the industry, which were reported by Chinese state media on Monday.

The measures include credit support for indebted property developers, financial support to ensure the completion and delivery of projects to landlords and help with deferred repayment loans for home buyers.

It came on the same day the National Health Commission issued 20 rules to “optimize” China’s zero COVID policy, where some restrictions were eased to limit its social and economic impact.

“We see this as the most crucial pivot since Beijing dramatically tightened funding for the real estate sector,” Ting Lu, chief China economist at Nomura, said in a note.

“We believe these measures demonstrate that Beijing is willing to undo most of its financial tightening measures.”

Hong Kong shares jumped more than 3% on Monday after the measures were unveiled, extending Friday’s rally of more than 7% before paring gains to 1.7% at the close.

Hong Kong-listed shares of China’s biggest developer by sales, Country Garden, closed up 45%, while shares of main competitor Greenland gained more than 35%.

“Not a bailout”

Beijing imposed widespread restrictions on lending to property developers in 2020, which exacerbated their liquidity problems and caused the default of several of the most important bonds.

The ripple effects on the massive property sector have been severe, with cash-strapped developer Evergrande – China’s largest – and others failing to complete projects, sparking mortgage boycotts and protests home buyers.

The measures emphasized “guaranteeing the handover of buildings” and ordered development banks to provide “special loans” for this purpose, according to a copy circulating online.

The document ordered financial institutions to treat public and private real estate businesses on an equal footing, as well as to “actively cooperate with struggling real estate businesses in risk management.”

The measures also included “extending transition period provisions … home loans” for struggling developers and supporting “high-quality real estate businesses to issue bond financing”.

“The plan includes financial stability measures which aim to prevent mass defaults and therefore ensure a ‘soft landing,'” ANZ analysts wrote in a note.

But analysts have warned that these changes – alongside the limited easing of zero COVID measures – will not prompt an immediate recovery for the struggling sector.

“While few expect a financial crisis caused by the current housing downturn, the prevailing view is that the housing sector will remain weaker for longer. As a result, the worst is far from over for developers,” Macquarie economist Larry Hu said in a note. .

“The package is not a bailout of property developers,” wrote Andrew Batson, analyst at Gavekal Dragonomics.

“With the new policies, the government is working to make its current approach to COVID containment and the property market work, rather than moving to a different approach.”

New home prices have been falling for more than a year as demand struggles to recover due to tight ongoing pandemic controls that have undermined consumer confidence.

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