China indicates a shift in support for real estate

Tue Mar 26 2024
Julie Young (588 articles)
China indicates a shift in support for real estate

Investors are looking for something a little more nebulous: tangible actions, while China’s leader and head of the central bank have been trying to soothe the country’s troubled real estate market in recent days.

Pan Gongsheng, governor of the People’s Bank of China, expressed somewhat optimistic views on Monday about the Chinese real estate market, stating that the industry is exhibiting “positive signals,” as reported on the PBOC website.

Chinese real estate equities initially surged following Pan’s remarks on Tuesday, but later lost part of their gains.

In early trading in Hong Kong, Longfor Group shares increased by 5.8% before retracing to 4.5 percent. Last but not least, China Resources Land rose 3.3% and gained 6.6%. China Vanke and Shimao Group both had gains of 2.0% and 4.2%, respectively.

Monday’s remarks by Pan followed Friday’s remarks by Chinese Premier Li Qiang at a State Council meeting, in which he emphasized the importance of the real estate industry to the Chinese economy and its connection to the fundamental interests of the Chinese people.

Xinhua, the state news agency, said that Li had asked for better preparation of pertinent supportive policies in order to stabilize the real estate market and increase prospective demand.

There seems to be a feeling of urgency among Chinese leaders to revitalize the sector, according to some observers. However, they also point out that a piecemeal approach will only make a minimal difference.

In light of the current economic climate, where individuals are worried about their future income and property prices, Daiwa economist William Wu stated that it has become evident that the small advantages from these anticipated softening measures would not be enough to encourage homebuyers.

According to him, the market is becoming less responsive to traditional relaxations in that regard.

Although Li’s statement may have provided a short boost to real estate equities, the most recent statistics show a different picture. Compared to the same period last year, the value of new home sales in China fell 32.7% in the first two months of this year. Sales of newly constructed homes measured by square footage plummeted 25%, while developers saw a 29.7% decline in new building starts.

Even if Pan’s remarks hint at future governmental backing, Morningstar analyst Iris Tan predicts that banks will not dramatically expand new loans to private developers by easing risk management regulations.

Few of China’s recent actions—such as creating a whitelist of approved borrowers for development loans, reducing mortgage rates, and loosening financing limits on certain projects—have had the desired effect of improving the market mood.

The CEO of Daiwa, Wu, expressed his belief that stimulus-induced stock price rallies would not be sustained.

Numerous real estate developers have seen their companies harmed by the sluggish economic recovery and poor consumer mood, resulting in loan payment defaults and significant impairments on their financial statements.

However, according to UOB economist Ho Woei Chen, investors believe Beijing is not planning to reveal any significant actions and may likely only take the minimum precautions to prevent any economic problems, despite officials’ enhanced rhetoric implying stronger support for the economy.

Julie Young

Julie Young

Julie Young is a Senior Market Reporter and Analyst. She has been covering stock markets for many years.