Investors in Chinese property stocks have been a sceptical bunch. No amount of reassurance from policymakers could stem slides of more than 70 per cent in the shares of real estate groups. On Monday, that all changed.
The sector rallied in response to liquidity-boosting measures by Chinese regulators. But the package, while helpful for short-term financing, is unlikely to bring an end to the sector’s woes. Investor sentiment has weakened too badly, as rising rainy-day savings demonstrate.
Shares of Country Garden, China’s largest property group, rose more than 40 per cent on Monday. Local peers Logan Group and KWG Group jumped more than 30 per cent. Battered real estate bonds, many of which were down to below 10 cents on the dollar, more than doubled.
But the real problem can be found in an unexpected figure. New household savings hit a record Rmb13.2tn ($1.8tn) for the first nine months. Equity investors have pulled money out of the property sector and parked them in longer-maturity savings accounts. Home prices are continuing a record slide that has lasted for more than 13 months. New-home sales at the biggest developers fell almost 30 per cent in October.
Investors who formerly saw property and real estate company shares as bulletproof now view them as among the riskiest assets.
The sheer size of the sector’s debts means a government bailout should not be expected. Local developers have $120bn worth of debt maturing this year alone. Regulators remain set on reining in the huge debt of developers. Zero-Covid policies mean developers face sales hurdles.
It is telling that shares in local lenders have not rallied. Non-performing loans to the property sector are growing rapidly, as announcements from the country’s largest lenders, including Industrial and Commercial Bank of China and the Bank of China, reveal. Credit quality is deteriorating at small- and medium-sized lenders because of a rise in mortgage defaults.
Lending to the property sector has continued to rise this year despite growing bad loans. That reflects the buffer role banks are pressured to play to minimise negative impact on the economy.
Investors who envisage a wholesale bailout are deluding themselves. At best, new measures will help developers complete some unfinished projects and pay off urgent debt maturities into early next year. Government assistance is a band-aid, albeit a big one, over a deeper problem.
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