Beijing Digs Property Developers Out of Cash Crunch, But Reforms Will Need to be Supported by Demand

Shares of Chinese real estate developers have soared into 2023, largely reflecting the introduction of more permissive policy from Beijing. Refinancing and debt sales, along with some share offerings, have helped desperate property firms gather enough liquidity to service their near-term liabilities. In particular, the infamous “three red lines” standard is likely to be reviewed and revamped by the CCP.

We’ve yet to see a meaningful rise in Chinese real estate demand, which the industry will require to begin a real recovery, but some are optimistic that the elimination of China’s zero-COVID policy and a resulting rebound in GDP growth should inspire renewed investor confidence. If that is not the case, and a rise in demand does not materialize, more pain could lie ahead for the property sector.

Related ETFs: Global X MSCI China Real Estate ETF (CHIR), iShares MSCI China ETF (MCHI)

Shares of Chinese property developers have recently surged close to seven-month highs as prices for the country’s dollar-denominated high-yield notes, a sector dominated by real estate firms, have reached levels last seen in January 2022, according to a Bloomberg index. Back in November, MRP highlighted the beginning of Chinese property developers’ resurgence after the unveiling of a 16-point plan to ease a crackdown on lending to the sector. Measures ranged from addressing developers’ liquidity crises to loosening down payment requirements for homebuyers, according to people familiar with the matter.

Prior to the Chinese Communist Party’s (CCP) November reforms, the party had already rolled out generous tax breaks, multiple large cuts to the country’s loan prime rate (typically used as a reference for mortgages), and reductions to the reserve requirement ratio (RRR) for banks, in pursuit of loosening up the liquidity situation and countering knock on effects from widespread defaults – yet none of those measures has had a meaningful effect in reversing the decline of the property sector. Data from China Index Academy (CIA), cited by the South China Morning Post, showed that sales at the country’s 100 largest property developers totaled just 7.6 trillion yuan ($1.1 trillion), down -41.3% from a year before. Home prices in those markets moved lower in all six months of H2 2022.

Per Reuters, the country’s property sector will likely see home sales fall for a second straight year in 2023, but the pace of declines will ease. That’s according to their survey of eight economists and analysts, who project a median decline of -8% this year. That’s compared to…