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China’s property crisis may be over with a new rescue plan. Property values ​​are sky high

Hong Kong
CNN Business

Chinese authorities are making their biggest effort yet to end a crisis in the country’s vast property sector that has weighed on the economy over the past year.

Shares in China’s biggest property developer Country Garden rose as much as 52% in Hong Kong after Beijing on Friday unveiled a 16-point plan that eases considerably a reduction in lending to the sector.

Key measures include allowing banks to extend maturing loans to developers, supporting property sales by reducing the size of down payments and cutting mortgage interest rates, increasing other financing channels such as bond issues, and ensuring the delivery of pre-sold homes to buyers.

“Essentially, policymakers told banks to try their best to support the real estate sector,” according to Larry Hu, China chief economist for Macquarie Group.

Tao Wang, chief China economist at UBS, described the package of measures as a “turning point” for China’s property sector. Along with other guidelines announced earlier this year, it can inject more than 1 trillion yuan ($142 billion) in real estate, she estimated.

Chinese developers listed in Hong Kong rose 11% on average on Monday, leading the broader market higher. Longfor Properties – another top developer – jumped 17% while shares of Dexin China, a Hangzhou-based developer, soared 151%.

The rescue package is seen by many analysts as the strongest signal to date from the Chinese authorities that a two-year crackdown on the sector is now over. In August 2020, the government began trying to rein in excessive borrowing by developers to curb runaway house prices.

The problems escalated last year when Evergrande – the country’s second largest developer – defaulted on its debt. When the real estate sector crashed, several large companies sought protection from their creditors. The money crisis led to work on many pre-sold housing projects across the country being delayed or suspended.

The crisis entered a new phase this summer when angry home buyers refused to pay mortgages on unfinished homes, troubled financial markets and triggered fears of contagion. Since then, the authorities have tried to defuse the crisis by urges the banks to increase loan support for builders so that they can complete projects. Regulators have also cut interest rates in an effort to restore buyer confidence.

But the real estate slump persisted, as buyers pulled back from the market due to the weak economy and strict Covid curbs. In October, sales of the top 100 property developers fell 26.5% from a year ago, according to a private survey by China Index Academy, a top property research firm. So far this year, their sales are down 43%.

Coupled with a strict zero-Covid policy that has squeezed manufacturing and consumer spending, the property woes have dragged on China’s economy. In the third quarter, China’s GDP grew 3.9% from a year earlier, putting overall growth for the first nine months at just 3%, well below the official target of 5.5% set in March.

While welcoming Friday’s move, analysts remained cautious about the impact it would have on buyer’s confidence.

“The real estate market has yet to show signs of recovery,” Nomura analysts said in a research report on Monday, adding that the latest measures may have “little direct impact” on stimulating home purchases.

“Beijing’s zero-Covid strategy, despite some recent fine-tuning, will continue to weigh on the property sector,” they added.

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