LDN - Business

China's property firms rally after Beijing pledges economic support

[July 25, 2023] By Clare Jim and Karin Strohecker

HONG KONG (Reuters) -Investors piled into Chinese property developers' shares and bonds on Tuesday following a sharp selloff in the previous session, after policymakers said they would step up support for the embattled sector.

Hong Kong's Hang Seng Mainland Properties Index jumped 14%, while the CSI 300 Real Estate benchmark gained 8% with the latest rally putting the country's real estate sector indexes on track for their first monthly gain after four months of hefty losses.

Property giant Country Garden and its management unit Country Garden Services, both listed in Hong Kong, rebounded 18% and 26.5%, respectively - more than offsetting Monday's sharp declines.

Country Garden's May 2025 dollar bond firmed to 21.675 cents on the dollar, versus 15 cents on Monday evening. Its Shanghai-traded bond surged 25% to 38 yuan, while a Shenzhen-traded issue rose 44% to 33.6 yuan.

The company has brought in accountancy firm KPMG to perform due diligence on its assets and liabilities, according to a report by Debtwire. Country Garden did not immediately respond to request for comment

The broad rally was fuelled by China's top leaders on Monday pledging to ramp up policy support for the economy amid a torturous post-COVID recovery, and focusing on boosting domestic demand.

For the property sector, the Politburo, a top decision-making body of the ruling Communist Party, said it is necessary to adapt to significant changes in market supply and demand and optimise property policies in a timely manner.

While few details of the support measures were provided, investors focused on one change in tone in particular, which they thought could mean more property stabilisation steps were imminent.

The Politburo did not mention the oft-repeated phrase "houses are for living in, not for speculation" in the statement after the meeting.

"Most important, (Beijing) sent a signal of further easing property restrictions by dropping the phrase...and mentioning streaming property policies," Nomura chief China economist Ting Lu said.

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Surveillance cameras are seen near residential buildings under construction in Shanghai, China July 20, 2022. REUTERS/Aly Song

Gains in the sector were broad bases, with shares of major developers Sunac China ending the day some 17% higher, while Longfor Group rallied 23%, and Seazen Group and KWG Group both soared more than 25%.

For many property stocks this was the best day since November when Beijing announced it would ramp up support for the embattled sector.

Sino-Ocean Group's onshore bond rose 8.6% to 23.5 yuan in Shanghai. The state-backed firm is currently negotiating with creditors to extend the repayment for the yuan bond due Aug. 2.

Meanwhile some holders of a $400 million bond issued by Wanda Properties Overseas had received payments on the note which had matured on Sunday.

While the overall statement by Politburo exceeded low market expectations, analysts said further property easing was unlikely to be large and may simply be on "city by city" basis.

Nomura's Lu maintained the view that there is no quick fix for the property sector, and that the central government would only marginally ease some existing restrictive measures in large cities.

Morgan Stanley expected policymakers would likely roll out a "more sensible and forceful package" that could include easing second home purchase restrictions in second tier cities.

In recent weeks, investors were wary of a deepening debt crisis in the property sector as new signs of trouble emerged among state-backed property developers Sino-Ocean Group and Greenland Holdings, as well as property giants Country Garden and Dalian Wanda Group.

(Reporting by Clare Jim; Additional reporting by Jason Xue in Shanghai and Karin Strohecker in London; Editing by Sherry Jacob-Phillips, Sam Holmes and Simon Cameron-Moore)

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