China: Home sales rebound after easing of mortgage rules
As Bloomberg reports, home sales in Beijing and Shanghai have soared in the past couple of days following mortgage easing, an early sign that government efforts to cushion a record slowdown in the housing sector are helping. Existing home sales in the two megacities doubled over the weekend compared to the previous weekend, according to CGS-CIMB Securities. “We were surprised by the strong recovery in Beijing and Shanghai despite the difficult economic situation,” said Raymond Cheng, head of China real estate at CIMB.
China's megacities — each with a population of more than 20 million — benefited most from Thursday's announcement that it lowered down payment thresholds nationwide. In addition, Beijing and Shanghai will no longer exclude people who have previously had a mortgage – even if fully repaid – from being considered as first-time home buyers, as long as they don't own a property, according to separate statements from city governments. The way is thus opened for speculators to re-enter the market.
Second, Country Garden , one of China's most struggling real estate developers, has agreed with creditors to restructure an upcoming bond redemption. Shares of Hong Kong-listed Country Garden, which is facing default and whose collapse would have more negative consequences than Evergrande's bankruptcy, rose 14.6% after jumping as much as 19% to its highest level since 10 August. Property developers were also up, with Hong Kong-listed Longfor Group up more than 8% and Seazen Group up more than 18%.
Country garden on 4/9
Country Garden's worsening financial woes further highlighted the fragility of the country's real estate sector, which accounts for about a quarter of the economy and whose debt situation has been dire as of 2021.
Considered financially sound compared to its peers, Country Garden, a major Chinese private developer, had not missed a debt payment obligation, onshore or offshore, until it failed to make coupon payments on dollar bonds on the month last year after slowing domestic demand hurt its cash flow. Despite today's recovery, Country Garden now has just days to avoid default on its dollar bonds, whose grace period ends Sept. 5 with $22.5 million in interest. There was some good news: In the deal reached Friday night, one day before the developer is due to pay off its $536 million worth of onshore debt, the company will pay off its obligations in installments over three years.
China's initiatives are the latest in a long campaign to bolster the real estate sector. Beijing's latest measures appear to be creating critical mass to support the efforts, said Altaf Kassam, head of investment strategy and research for Europe, the Middle East and Africa at State Street Global Advisors.
“The [Chinese] government has not been willing to pull out the bazooka and roll out massive stimulus measures,” Kassam said. "Now there seems to be a little more interest from the Chinese in protecting the real estate market and giving investors confidence."
“China's recent round of policy resets, which happened with rare frequency to see, has sparked some optimism in the stock world,” said Hebe Chen, an analyst at IG Markets. Moreover, Country Garden's success in securing more time for its onshore private bonds offers brief respite for the real estate sector, even if a final resolution remains elusive, he said.
The major Asian equity benchmark gained its most since July last week, recovering at the end of a month in which it suffered its worst monthly drop since February. Now traders will refocus their attention on China's trade and inflation data due later this week, which will likely signal that the economy's recovery remains fragile, keeping pressure on policy makers to roll out more stimulus.
Carlos Casanova, senior economist for Asia at UBP, said markets rallied after authorities showed they were taking more important steps to shore up the housing sector in recent days.
“While these are sentiment-positive measures, which should help stabilize real demand for homes, the sector is not entirely out of the woods yet,” he said, adding that developer bond defaults are “artificially low” while Beijing try to defuse the situation. debt risks in an orderly manner.
“We will see in the coming months whether these supply-side measures can boost home buying demand, which is crucial for the fate of Chinese developers and their ability to handle upcoming debt maturities,” he said. Tara Hariharan, Chief Executive Officer of Global Macro. Management of the NWI hedge fund in New York. He noted that Country Garden and other developers face sizable maturity payments this year.
Country Garden alone faces 108.7 billion yuan of debt due within 12 months; in the absence of a restructuring of those obligations, the company will almost certainly default.
After making interest payments by Tuesday, the creditors said they expect Country Garden to enter restructuring negotiations for all of its offshore debt to avoid a "hard default," similar to that done with onshore creditors.
Furthermore, the move to facilitate access to mortgages can lead to a dangerous situation in which even unreliable operators are granted credit. We have already seen a similar situation with the subprime crisis in the USA, during the great financial crisis. Are we sure we want to see it in China too?
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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-rimbalzano-le-vendite-di-case-dopo-un-allentamento-nelle-norme-sui-mutui/ on Tue, 05 Sep 2023 08:00:00 +0000.