China property shares extended their gains on Thursday (May 2) after the government said it would coordinate and improve policies to clear housing inventory and private data showed April home sales for major property developers dropped at a slightly slower pace.

The Hang Seng Mainland Properties Index rose 4 per cent in the morning session to a more than four-month high, with China Vanke and Longfor Group jumping 10 per cent and 7.8 per cent, respectively.

The property sub-index has been rallying since last week on speculation more stimulus measures were likely to be unveiled to help the embattled sector.

Home sales value of top 100 developers in April slid 44.9 per cent from a year ago, narrowing from a 45.8 per cent drop in March, according to surveys published on Wednesday (May 1) by CRIC, a major real estate information provider. But the April value was still 12.9 per cent lower than March.

Prices for new homes in April rose 0.27 per cent from March, while second-hand home prices dropped 0.75 per cent, according to CREIS, another major data provider.

March new home prices fell at their fastest pace in more than eight years, official data showed, as the financial woes of major property developers continued to drag on demand and the economic outlook since the sector slipped into a debt crisis in mid-2021.

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Chinese authorities have been ramping up measures to prop up the troubled sector, but analysts say many of the policies are piecemeal in nature or have only limited, short-term impact.

Citi said in a report on Wednesday that April sales among different cities were mixed but a few good quality markets were recovering. It expected a slightly weaker May with fewer launches but a narrowing sales decline from the second quarter due to a lower base.

Following the Politburo of the Communist Party’s inventory comment, the Natural Resources ministry published a statement on Tuesday it would adjust dynamically the residential land supply in each city depending on their housing inventory, and it would pause new supply in a city if the time needed to clear inventory is above 36 months.

The city of Beijing also announced “optimised measures” on Tuesday to allow some residents to buy a new flat in outer districts to boost home sales.

Easing policies from more cities in the coming weeks are expected, following similar steps by major cities including Beijing and Chengdu last month, analysts said.

Many expect local governments to buy more housing stock from developers and turn them into subsidised housing.

Nomura said taking over those inventories rather than building public housing from scratch could be a much better strategy for Beijing and local governments.

“Spending precious government money on starting public housing projects while there are numerous unfinished developers’ projects could deal a further blow to the faltering property sector,” the bank said.

But Citi cautioned these purchases could further weigh on the finances of local governments and there is a lack of demand for rental housing in non-core areas. REUTERS