Property shares fall after China targets ‘unregulated’ expansion

CHINESE real estate shares fell after the government said it would target disorderly expansion in the sector, underscoring concerns for the nation’s battered developers.

Beijing pledged to prevent “unregulated” expansion in real estate and promote stable development, Premier Li Keqiang said on Sunday (Mar 5) at the annual session of the National People’s Congress — the Communist Party-controlled parliament.

A Bloomberg Intelligence gauge tracking Chinese developers fell nearly 1.9 per cent on Monday, the biggest intraday drop since on Tuesday. In Hong Kong, Country Garden Holdings declined as much as 6.4 per cent, while Longfor Group Holdings was down 4.8 per cent.

The latest rhetoric underscored how Beijing plans to steer a soft landing from its worst property downturn while avoiding triggering a bigger crisis in the finance industry. A stable property market will be key for China’s recovery this year, given the sector’s weight in the national economy, estimated to be anywhere from about 15 per cent to 25 per cent of gross domestic product.

“The latest remarks suggest authorities will maintain its tough regulation over the sector, and that no developers will be allowed to expand disorderly and hamper stability in the financial markets,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co.

While the US$1.9 trillion new-home market remains fragile, there are tentative signs the crisis may be easing after the government issued sweeping measures to support the sector. A 16-month home-price decline halted in January and sales by the 100 biggest developers rose in February for the first time since June 2021.

The government is trying to safeguard the health of top-tier real estate companies, instead of issuing an indiscriminate bail-out.

Li said the government would try to ensure “effective risk prevention and mitigation” in leading high-quality developers and help shore up their balance sheets.

Over the past few years, President Xi Jinping’s administration has used a similar expression of reining in disorderly expansion of capital in its crackdown on the private sector from fintech to online tutoring under the common prosperity campaign.

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Meanwhile, China set a modest economic growth target of around 5 per cent for the year, a sign the nation’s top leaders are still concerned about the country’s recovery, given weak consumer confidence, declining exports and a housing market still under pressure.

“The key to China’s property market problem remains on the demand side, where residents’ housing expectations have changed,” said Shen of Chanson.

The government will continue to support consumers to buy their first homes and help resolve the housing problems of new urban residents and the younger generation, Li said in the report on Sunday.

Financial risks

Beijing also pledged to effectively prevent and defuse major economic and financial risks this year, according to the government report.

Xi himself stressed the need to safeguard the financial system this year, especially preventing systemic risks that could stem from the embattled property sector, according to an article published in mid-February in the Communist Party’s Qiushi magazine.

There remains many risks and “hidden dangers” in the real estate market, Li said, adding the operating risks of some small and medium-sized financial institutions have been exposed in the past few years.

Authorities will also continue to deepen financial reforms, step up regulation and make sure all parties involved to assume their full responsibilities to guard against both regional and systemic financial risks, Li said.

The leadership’s concerns over a property crisis may have been eased by the market’s recovery since the Chinese New Year, suggesting that slower pace of further stimulus policy, according to Guosheng Securities chief bond analyst Yewei Yang. BLOOMBERG