Investors expressed concern on Monday as shares of Chinese developers wobbled due to doubts about the effectiveness of China’s recent measures to stabilize its struggling property sector. These measures were considered by many to be insufficient in creating a sustainable recovery in both demand and confidence.
Hong Kong’s Hang Seng Mainland Properties Index remained unchanged by late morning, after experiencing a more than 2% drop earlier in the session. Despite the temporary setback, the index has still managed to gain approximately 18% this month, following the announcement by the Politburo on April 30 that it would work towards clearing housing inventory.
Chinese developer China Vanke saw its stock rise by nearly 5%, reversing earlier losses. Similarly, Sunac China, a major developer that recently completed offshore debt restructuring, saw its stock bounce by over 3%. However, Shimao Group, China-Ocean, and KWG Group remained in negative territory.
In other news, China announced measures to facilitate an additional 1 trillion yuan ($138 billion) in funding and relax mortgage rules. As part of these measures, local governments will be purchasing “some” apartments.
The central bank has announced plans to establish a 300 billion yuan ($41.49 billion) relending facility for state-owned enterprises (SOEs) to acquire completed and unsold homes at affordable prices for affordable housing purposes. This move is expected to generate 500 billion yuan in bank financing.
The central government’s move to become a buyer is seen as a significant development by analysts. However, they also point out that the amount of financing being offered is much smaller compared to the estimated trillions of yuan worth of housing inventory. Macquarie economists believe that Beijing’s previous statements indicated a goal of clearing 18 months’ worth of inventory, while the current timeframe is 28 months.
The cost of achieving the policy goal is estimated to be around 2 trillion yuan, according to economists. However, they believe that this effort alone is unlikely to fully solve the problem due to its limited size and execution challenges. Nonetheless, economists find it encouraging that policymakers are taking steps in this direction after previous failures.
Goldman Sachs predicts that if the government implements a comprehensive program to reduce inventory, it could take around nine months to stabilize China’s property prices.
The U.S. investment bank has emphasized the importance of proper execution when it comes to new measures introduced by policymakers. While there has been a signal of a more supportive stance, the effectiveness of these measures will ultimately depend on how efficiently they can be implemented.