On Monday, Chinese property stocks and bonds were up sharply on news of a new support package for the debt-stricken sector, announced by banking regulators.
Analysts hailed the package, which was designed to boost liquidity in the real estate sector, as a “turning point” in the Chinese real estate market. It immediately caused the property index to soar to a two-month record high.
Hong Kong-listed Country Garden, one of China’s largest developers, rose over 36% as the Hang Seng Mainland Properties Index rose over 16%. Double digit gains were seen among many other Chinese property developers.
The cash-strapped property sector had been struggling with defaults and stalled projects, which was hurting investor confidence. This had spiraled as customers began refusing to pay mortgages for projects which had not been completed, or in some cases begun. That began to affect banks, which had already paid out the money to developers, and were now not receiving payments on the mortgages from customers. Accounting for 25% of the Chinese economy, the real estate sector had begun to drag down the growth of the second-largest economy in the world.
The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) released the 16 point relief plan, which includes loan repayment extensions, which will extend a year-end deadline for lenders to pay off their share of loans in the real estate sector.
According to the Financial Times, a document signed by the PBOC and CBIRC says lenders will “now have an undetermined amount of time to limit the share of their outstanding real estate loans at major banks to 40% of total loans and their outstanding mortgages 32.5%.”
The move will affect 26% of China’s total lending, helping the sector to avoid a credit crunch, and alleviating pressure on the industry.
In a note, Citi said that the package is a major shift in policy by Chinese regulators, transitioning from “imposing restrictions,” to “providing support” and “rescuing projects but not developers,” to “rescuing both developers and projects.”
