China’s support for top builder revives calls for broader state rescue
CHINA’S show of support for one of its top builders has reinvigorated the property sector, but investors want to see more concrete measures before diving back in.
Market players are looking for Beijing to unveil further steps to reverse a long-running slump after a pivotal week where authorities signalled their backing for China Vanke, the second-largest developer by contracted sales. On Tuesday (Nov 7), policymakers met firms including Vanke, Longfor Group Holdings, Gemdale (China) and Poly Developments and Holdings Group, according to sources with knowledge of the matter.
“As the government’s potential assistance to China’s real estate sector is a recurring subject of speculation, we think that investors need to see concrete actions being taken before they can regain confidence in the property sector,” said Andy Suen, co-head of Asia ex-Japan fixed income at PineBridge Investments.
With home sales down and many developers in default, investors want to see stronger measures, including cheaper funding and local governments taking over uncompleted projects. A vote of confidence this week from officials in Vanke’s hometown had fanned hopes of a broader rescue, igniting a rally in a Bloomberg gauge of Chinese developers before the move quickly faded.
During the Tuesday discussion – a regular feedback gathering – developers offered suggestions about rules that could be eased, such as the limits around lending and the pre-sale of homes before they are completed, said the people who declined to be identified as they are not authorised to speak publicly.
Regulators, however, did not give any guidance during the meeting, they added.
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The fallout from the slump has reverberated across the economy given that the property market and related industries account for about a fifth of China’s gross domestic product. While recent measures have boosted sentiment – Chinese high-yield dollar bonds are on pace for their biggest weekly advance in two months – most investors remain sceptical that the sector has reached a turning point.
Vanke’s dollar bonds also resumed declines since Thursday after climbing earlier in the week.
“We have to see deeper, wider, faster and scalable actions such as local government taking over large scale projects as the issue now is the capital market is not available for the developers,” said Kenny Chung, portfolio manager at Astera Capital, a Hong Kong-based investment firm that’s funded by the family offices of several major local developers.
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Authorities have sought to allay the concerns, with central bank governor Pan Gongsheng saying in an interview with the state broadcaster published Friday that China’s property sector risks are under control.
Insufficient support
Wilson Er, portfolio manager at Kamet Capital Partners, urged authorities to restore the confidence of homebuyers. “This could be achieved through perhaps forming consortiums of developers, offering cost-effective funding and collaborating with state-owned enterprise builders,” he said.
The fate of China’s builders has taken on an added urgency after Country Garden Holdings, once the country’s largest builder by contracted sales, was deemed to be in default on a dollar bond for the first time in October. The failure to pay was seen as a sign that previous support measures rolled out by the authorities were insufficient.
The government had announced a 16-point plan last year to shore up the sector, including efforts to address the liquidity crisis faced by developers and a “temporary” easing of a signature restriction on bank lending. Authorities further eased mortgage curbs in August.
“Markets are pricing in some additional policy easing to help stabilise the property sector,” said David Chao, Asia-Pacific ex-Japan strategist at Invesco Asset Management. “Policymakers have already instituted a raft of small measures to support the property market and what we’ve seen in the past week only amplifies the message that policymakers are keen to try and put a floor on the market.” BLOOMBERG
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