China's property support measures disappoint, developers' shares falter (updated)

KWG group

20/05/2024 02:48

(Updates prices)
    By Clare Jim and Xie Yu
       HONG KONG, May 20 (Reuters) - Shares of Chinese
developers wobbled on Monday as investors fretted that China's
"historic" steps to stabilise its crisis-hit property sector
fell short of what is required to foster a sustainable
turnaround in demand and confidence.
    Hong Kong's Hang Seng Mainland Properties Index  .HSMPI 
closed down 0.7%, after having gained around 18% so far this
month after the Politburo said in an April 30 meeting that it
would coordinate to clear housing inventory.
    Embattled state-backed developer China Vanke  2202.HK  eased
0.2%, after bouncing as much as 6.4% in the morning session.
Shimao Group  0813.HK , R&F Properties  2777.HK , Kaisa Group
 1638.HK  and KWG Group  1813.HK  were down more than 10% each.
    China unveiled measures on Friday to facilitate up to 1
trillion yuan ($138 billion) in funding and ease mortgage rules,
with local governments set to buy "some" apartments.
    As part of those steps, the central bank said it would set
up a 300 billion yuan ($41.49 billion) relending facility for
state-owned enterprises (SOEs) to purchase completed and unsold
homes at "reasonable prices" for affordable housing.
    The central bank expects the relending programme would
result in 500 billion yuan worth of bank financing. 
    Friday's announcement came after waves of policy support
measures over the past two years failed to revive the sector,
which at its peak accounted for a quarter of national GDP and
remains a major drag on the world's second-biggest economy.    
    While a housing ministry publication described the latest
policies as a "historic moment" for the industry, many China
watchers were more circumspect in their assessment.
    Analysts said the central government's decision to step in
as a buyer marked an important step but noted that the size of
financing on offer pales in comparison to the estimated
trillions of yuan worth of housing inventory across the country.
    There were 391 million square metres (4.2 billion square
feet) of new housing for sale in January-April, up 24%
year-on-year, the latest official data show, equivalent to 6.6
Manhattans Tianfeng Securities estimates it will cost around $1
trillion to buy the entire stock.
    Bank of America head of Greater China property research,
Karl Choi, noted that social housing programs are only mandated
in larger cities, estimating that the 500 billion funding could
purchase up to 15% of inventory in tier-2 cities at a deep
discount.        
    Macquarie economists say Beijing's previous statements
suggested 18 months of inventory clearing may be the
government's policy goal, versus the current timeframe of 28
months to clear the stock.
    Achieving the policy goal will cost an estimated 2 trillion
yuan, they said. 
    "Given its limited size and the various challenges in
execution, it alone is unlikely to solve the problem," Larry Hu,
the bank's chief China economist said in a report. "But it’s
encouraging that policymakers are moving in this direction after
failures in the previous years."
    Analysts compared the latest 300 billion relending facility
to another 100 billion yuan facility introduced in January 2023
for eight pilot cities to purchase inventory for subsidized
rental housing. So far, only around 2 billion yuan have been
drawn down by January this year, official data showed,
highlighting the lack of incentives and participations from the
market. 
    Local governments, already some $9 trillion in debt, may be
reluctant to expand their social housing projects which provide
low returns, and banks would also be hesitant to lend to
potentially loss-making businesses.     
    Bank of America's Choi also said the duration of this
lending, designed to be a maximum of five years, is too short
for the payback period for a rental housing project, which could
be a concern for SOEs and commercial banks. 
    Goldman Sachs expected it would take nine months to
stabilize China's property prices if the government launches a
full-scale program to reduce inventory.    
    "Much depends on execution," the U.S. investment bank said.
"Despite policymakers signalling a more supportive stance, the
effectiveness of any new measures will hinge on how quickly and
easily they can be implemented."   
    Reviving homebuyer confidence is still the key to a property
recovery, analysts say.
    Li Gen, chairman of Beijing G Capital Private Fund
Management Center LLP, said few entities will be motivated by
Friday measures under current market conditions.
    "The demand for property is weak with many people concerned
about jobs and incomes in future."   

    ($1 = 7.2302 yuan)

 (Reporting By Hong Kong and Shanghai newsrooms; Editing by Anne
Marie Roantree, Shri Navaratnam and Louise Heavens)
 ((annemarie.roantree@thomsonreuters.com; +852 97387151; Reuters
Messaging: annemarie.roantree.thomsonreuters.com@reuters.net))