China property stocks rally on hopes of relief plan

Shares in Chinese property companies rose sharply following reports that Beijing may order state-run groups to guarantee some developer bonds issued in the country’s onshore market.

The Hang Seng Mainland Properties index rose as much as 10.5 per cent on Tuesday as investors snapped up shares after reports that the state-owned groups could provide support for real estate groups’ renminbi-denominated bond issuance.

Hong Kong-listed shares in both Country Garden and Longfor Properties rose as much as 18 per cent, while those of Gemdale Properties and CIFI Holdings rose as much as 7.6 per cent and 19.4 per cent, respectively.

The rally followed a report by emerging markets intelligence group REDD that five to six cash-strapped property groups had been told policymakers planned to provide them with liquidity support by ordering state groups to underwrite and guarantee their new renminbi-denominated bond issuance.

The report named Country Garden, Gemdale, Longfor and CIFI as among the developers shortlisted for government support. Traders said the plans could provide a boost for lower-risk developers whose ability to refinance debt obligations in the onshore market has come under pressure this year as the sector has grappled with a liquidity crisis and slowing economic growth.

“Many traders are expecting direct backing and guarantees from state banks,” said one Shanghai-based trader at an Asian brokerage. “As long as there’s liquidity backing, market sentiment will improve.”

Debt relief for developers from the central government could provide a much-needed reprieve for China’s housing market, which has been in turmoil since Evergrande, the world’s most indebted developer, defaulted on a dollar bond payment last year.

A number of other developers have subsequently defaulted on both dollar and renminbi repayment obligations. This has led to broader doubts about the rest of the industry, which had come to substantially rely on sales of unfinished homes for revenues as the government cracked down on excess leverage.

Questions over whether developers will be able to deliver on pre-sold homes have spurred hundreds of thousands of homebuyers across China to boycott mortgage payments this year, throttling sales revenues and worsening the liquidity crunch.

Hong Kong’s Hang Seng Mainland Properties index is down 43 per cent year to date and Bloomberg data show Chinese developers have lost about $54bn in market capitalisation in 2022.