New rules boost China property shares but could miss the mark, analysts say (updated)

Seazen

25/01/2024 09:54

(Updates share prices)
    By Clare Jim
       HONG KONG, Jan 25 (Reuters) - Chinese property shares
rose on Thursday, strengthened by the  latest relaxation in
credit measures to support the embattled real estate industry,
but few market participants expected them to overcome banks'
reluctance to lend.
    Authorities eased rules for bank loans on commercial
property on Wednesday as they sought to ease a liquidity crunch
that real estate firms have grappled with since mid-2021, when
the government first sought to rein in ballooning debt.
    Although property developers and analysts welcomed the new
measures, they were sceptical about their immediate impact,
saying banks have been reluctant to lend to most private
developers, despite regulators' repeated calls to do so.
    Analysts said the policies do not go far enough to change
the fundamental problem of weak confidence and fragile demand of
homebuyers, which is weighing on home sales, property firms'
major source of income.
    "While this could help to ease liquidity risk of indebted
developers, property demand will need to be stronger for home
prices and sales, and thus the sector, to recover," UBS analyst
John Lam said in a note.
    This week's new measures included allowing developers to use
the loans to repay existing loans and bonds, while raising the
amount they can borrow to 70% of the appraised asset value from
50% earlier.    
    China's CSI 300 Real Estate Index  .CSI100952  closed up
5.9%, while Hong Kong's Hang Seng Mainland Properties Index
 .HSMPI  firmed 4.4%.
    Guangzhou R&F Properties  2777.HK  surged 17.2% while
Sino-Ocean Group  3377.HK  and Seazen Group  1030.HK  both rose
more than 12%. Two of the largest private developers, Country
Garden  2007.HK  and Longfor Group  0960.HK , gained 5.9% and
8.1%, respectively.
    Despite the gains, developers and analysts say the troubled
companies may have already pledged most of their quality
commercial assets for other debt.
    "We have contacted some banks this morning. They didn't give
a positive response," said an executive at a developer that has
defaulted on its debt, speaking on condition of anonymity as he
was not authorised to talk to the media.
    "Unless the central government forces the banks to lend,
they wouldn't want to take the risk."
    Banks have been very strict in not lending to commercial
properties that are in bad locations or have poor operations
since the debt crisis, the executive added. 
    China's liquidity crisis has led many developers to default
on, or delay, debt payments, as they struggle to sell apartments
and raise funds.
    Despite Beijing's recent support measures, such as easier
access to cash for developers, cuts in home mortgage rates and
relaxed rules on buying homes, the market has shown little sign
of stabilising, with sales staying weak and yet more defaults.
    Valuations have also slumped in the last few years, making
it impossible to increase the lending from existing loans, even
though developers may now borrow up to 70% of the property
value, the executive at the developer added.
    UBS's Lam expected the credit support policy to be positive
for private developers with high commercial property assets
exposure, such as Longfor and Seazen.    
    Nomura said the biggest hurdle for a real property recovery
was the large scale of pre-sold but unfinished homes in low-tier
cities. The bank estimated completing construction of such homes
nationwide would require 3.2 trillion yuan.    
    "Given the sheer funding gap faced by developers to secure
the successful delivery of pre-sold homes, we doubt whether
banks are the correct choice for addressing this issue," it said
in a research note.
    It added that it believed Beijing would eventually need to
reach into its own pockets to fill the gap, using printed money
from the central bank.
($1=7.1600 Chinese yuan renminbi)

 (Reporting by Clare Jim; Editing by Clarence Fernandez and
Miral Fahmy)
 ((clare.jim@thomsonreuters.com;))