San Francisco Frontiers - China unveils sweeping measures to rescue property sector

The banking regulator and central bank on Friday issued a 16-point set of internal directives to promote the "stable and healthy development" of the industry, which were verified by Chinese media on Monday.

The measures include credit support for debt-laden housing developers, financial support to ensure completion and handover of projects to homeowners, and assistance for deferred-payment loans for homebuyers.

That came on the same day the National Health Commission issued 20 rules for "optimising" Beijing's zero-Covid policy, where certain restrictions were relaxed to limit the policy's social and economic impact.

"We view this as the most crucial pivot since Beijing significantly tightened financing of the property sector," wrote Ting Lu, chief China economist at Nomura, in a note.

"We believe these measures demonstrate that Beijing is willing to reverse most of its financial tightening measures."

Hong Kong stocks surged more than three percent Monday, extending Friday's more than seven percent rally, after the measures were unveiled.

Beijing imposed widespread lending curbs on property developers in 2020, which exacerbated their liquidity issues and caused several of the largest to default on bond payments.

The knock-on effects on the massive real estate sector were severe, with cash-strapped developer Evergrande -- China's largest -- and others failing to compete projects, sparking mortgage boycotts and protests from homebuyers.

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

The document ordered financial institutions to treat state-owned and private real estate enterprises equally, as well as "actively cooperating with distressed real estate enterprises in risk management".

The measures also included "extending the transition period arrangements... of real estate loans" for distressed developers, and support for "high-quality real estate enterprises to issue bond financing".

"The plan includes financial stability measures that aim to prevent massive defaults and hence provide a 'soft landing'," ANZ analysts wrote in a note.

But analysts cautioned that these changes -- alongside the limited loosening of zero-Covid measures -- would not cause an immediate recovery for the ailing sector.

New home prices have been dropping for more than a year, while demand is struggling to pick up owing to ongoing strict pandemic controls that have dampened consumer confidence.

E.Walker--SFF