Chinese developers closed higher after a report said banks may provide as much as 1 trillion yuan (S$204.8 billion) of loans to help builders complete stalled projects, with traders weighing whether this will be enough to rescue a crisis-hit industry starved of cash.

An index of developer stocks rallied as much as 1 per cent before closing up just 0.4 per cent, reflecting caution among some market participants over the effectiveness of the latest measure for an industry mired in 10 months of home-price declines. CIFI Holdings Group and Country Garden Holdings both rose at least 5 per cent before giving up most of their gains.

The People’s Bank of China will initially issue about 200 billion yuan of low-interest loans — charging about 1.75 per cent a year —  to state commercial banks, the Financial Times (FT) reported, citing people involved in the discussions. The authorities are hopeful banks will leverage this by up to 5 times to raise a total of about 1 trillion yuan, the report said.

“This is the most concrete measure so far, if the FT report is true,” said Patrick Wong, an analyst at Bloomberg Intelligence in Hong Kong. “It’s a positive move to see the government is taking action to secure the construction of pre-sale projects and ease market concerns.”

Many in the market remain sceptical about the potential impact of the loan plans, saying the size of the funds is relatively small compared with the debt-maturity wall faced by builders. In a recent note, UBS Group estimated the combined short-term debt of distressed developers amount to 742 billion yuan.

The focus on finishing stalled projects, rather than ensuring developers have access to greater liquidity condition, will also limit the effectiveness of the policy; while a longer-term rally needs to be accompanied by a rebound in home sales, some investors said.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Chinese high-yield dollar bonds, the majority of which are issued by developers, remained largely unchanged, lagging behind the rally in shares, according to credit traders.

“The basic problems of excess inventory, high leverage and falling prices remain,” said Jim Veneau, head of Asian fixed income at AXA Investment Managers Asia in Hong Kong. “There’s no magic bullet, so positive policy headlines tend to fade as details are analysed and put into context.”

Chinese leaders called for stabilising the property market and ensuring the economy stays in a “reasonable range” in the second half of the year, said a statement published by the official Xinhua news agency on Thursday (Jul 28). It did not provide more details.

Real-estate shares and bonds rallied on Monday after REDD reported that China’s State Council has approved a plan to set up a fund to support developers. Bloomberg News first reported some aspects of the plan last week.

Despite Beijing’s efforts to shore up the sector by offering home purchase incentives and facilitating developers’ access to funding, property prices have been sliding. A property stock gauge has slumped more than 20 per cent this year. Bloomberg