Residential buildings stand at the Metro Town development, jointly developed by CK Asset Property Holdings Ltd., Nan Fung International Holding Ltd. and MTR Corp., in Hong Kong, China, on Thursday, Jan. 11, 2018.
Anthony Kwan | Bloomberg | Getty Images
Hong Kong-listed property stocks surged on Monday, leading gains on the Hang Seng Index and powering the benchmark to be the top gainer in Asia.
Over the weekend, Country Garden won approval from its creditors to extend payments for a 3.9 billion yuan ($540 million) onshore private bond, according to sources and a document seen by Reuters.
Bloomberg reported the company also wired a coupon payment on a 2.85 million Malaysian ringgit ($613,000) denominated bond.
Country Garden is still scheduled to pay $22 million in coupon payments on two U.S. dollar bonds it missed in early August. The grace period ends Wednesday.
Some of China’s largest banks also cut interest rates on yuan deposits, including the Industrial and Commercial Bank of China, China Construction Bank Corp and Agricultural Bank of China.
Country Garden Holdings Co.’s Fengming Haishang residential development in Shanghai, China, on Tuesday, July 12, 2022.
Qilai Shen | Bloomberg | Getty Images
Shares of beleaguered Chinese real estate company Country Garden Holdings slumped to an all-time low on Friday as the company issued a profit warning a day earlier.
The stock fell to an intraday low of 90 Hong Kong cents, extending the company’s losing streak after eight sessions of losses in the past nine days. This included a 14.3% plunge on August 8.
The sell-off in Country Garden shares also spilled over to the wider property sector.
The broader Hang Seng Mainland Property Index was 1.49% lower in afternoon trade on Thursday. Shares of counterpart Longfor Group were down 1.9%, while China Resources Land saw its shares slide about 1%.
In a filing to the Hong Kong exchange, the company said it expects a record a net loss of about 45 billion yuan to 55 billion yuan (or about $6.24 billion to $7.63 billion) for the six months ended June. That’s compared with the 1.91 billion yuan profit for the same period last year.
Country Garden said it’s “mainly due to the decrease in gross profit margin of the real estate business and the increase in impairment of property projects as a result of the decline in sales in the real estate industry.”
Expected foreign exchange losses also contributed to the drop in net income, it said.
Attributable sales from January to July is estimated to come in at 140.8 billion yuan ($19.51 billion) —that’s a year-on-year decrease of 35%, and a 61% drop compared to the same period in 2021.
Read more about China from CNBC Pro
Earlier this week, Country Garden saw a sell-off after reports said the real estate firm had missed two bond coupon payments totaling $22 million over the weekend.
An investor relations representative for Country Garden did not deny the media reports, but also did not clarify the company’s payment plans, according to Sandra Chow, co-head of Asia Pacific Research for CreditSights, which is a unit of Fitch Group.
Pictured here are residential buildings developed by Country Garden Holdings Co. in Baoding, Hebei province, China, on Tuesday, Aug. 1, 2023.
Qilai Shen | Bloomberg | Getty Images
BEIJING — Two years after Evergrande’s debt troubles, worries about China’s real estate sector are coming to the forefront again.
Country Garden, one of the largest non-state-owned developers by sales, has reportedly missed two coupon payments on dollar bonds that were due Sunday. Citing the firm, Reuters said the bonds in question are notes due in February 2026 and August 2030.
Country Garden did not immediately respond to CNBC’s request for comment on the reports.
Meanwhile, Dalian Wanda saw its senior vice president Liu Haibo taken away by police after the company’s internal anti-corruption probe, Reuters reported Tuesday, citing a source familiar with the matter. Dalian Wanda did not immediately respond to a CNBC request for comment.
Hong Kong-listed shares of Country Garden closed more than 1.7% lower on Wednesday, after sharp declines earlier in the week.
“With China’s total home sales in 1H23 down year-on-year, falling home prices month-on-month across the past few months and faltering economic growth, another developer default (and an extremely large one, at that) is perhaps the last thing the Chinese authorities need right now,” according to Sandra Chow, co-head of Asia Pacific Research for CreditSights, which is owned by Fitch Ratings.
We are concerned that as big cities lift local property restrictions, it will drain up demand in low tier cities, which account for 70% of national new home sales volume…
An investor relations representative for Country Garden didn’t deny media reports on the missed payments and didn’t clarify the company’s payment plans, Chow and a team said in a note late Tuesday.
The report noted negative market sentiment spillover to other non-state-owned developers such as Longfor. Shares of Longfor closed about 0.8% higher Wednesday in Hong Kong after trading more than 1% lower during the day.
“Overall homebuyer sentiment is likely to also suffer as a result,” the analysts said.
China’s massive real estate market has remained sluggish despite recent policy signals. In late July, its top leaders indicated a shift toward greater support for the real estate sector, paving the way for local governments to implement specific policies.
Uncertainties remain around the sensitive topic of home prices.
“We are concerned that as big cities lift local property restrictions, it will drain up demand in low tier cities, which account for 70% of national new home sales volume and are the real drivers of commodity demand and construction activity,” Nomura analysts said in an Aug. 4 report.
“We are also concerned that merely easing restrictions on existing home sales without lifting restrictions on home purchase may add supply and depress home prices,” the report said.
For the last several years, Chinese authorities have attempted to curb debt-fueled speculation in the country’s massive — and hot — real estate market. In 2020, Beijing cracked down on developers’ high reliance on debt for growth.
With that faltering confidence, the private property sector will likely remain a drag on the country’s growth for the rest of the year.
Last year, many people halted mortgage payments after a delay in receiving the homes they had bought. Most apartments in China are sold before they are completed.
“After watching developers default and fail to complete housing for other families, few Chinese families are willing to shell out in advance for new housing,” Rhodium Group analysts said in a note this week. “With that faltering confidence, the private property sector will likely remain a drag on the country’s growth for the rest of the year.”
The analysts pointed out that new starts in residential construction have fallen for 28 months straight.
Real estate and related industries have accounted for about a quarter of China’s economy.
Redmond Wong, market strategist at Saxo Markets Hong Kong said Country Garden will find it “very difficult, if not impossible” to refinance — and other Chinese developers would face difficulties raising money as a result, especially offshore.
He pointed out that since China started its deleveraging campaign in 2016, it is very unlikely the state would step in to bail out real estate developers. “The most likely way for Country Garden or Chinese developers in similar situation to avoid defaults will be asset sales,” Wong added.
China’s state-owned developers have generally fared better in the latest real estate slump.
Country Garden has had the worst sales performance so far this year among China’s 10 largest real estate developers, with a 39% year-on-year decline in sales, according to data published by E-House Research Institute.
Vanke was the only other one of the 10 developers to post a year-on-year sales decline for January to July period, down 9%, the research showed.
The other names were mostly state-owned, such as Poly Development, which ranked first with a 10% sales increase during that time, according to the analysis.
But that’s had little impact on home prices overall.
Nomura pointed out in a separate report that average existing home prices dropped by 2% in July from the prior month, worse than the 1.4% decline in June, based on a Beike Research Institute data sample of 25 large cities.
The July level is 13.4% below a historical high two years ago, the Nomura report said.
Read more about China from CNBC Pro
The seven-day moving average of new home sales as of Aug. 6 was down by 49% versus 2019, according to Nomura. That’s worse than the 34.4% decline for the prior week.
Far more Chinese household wealth has been locked up in property than is the case in many other countries.
Tight capital controls also make it difficult for people in China to invest outside the country, while the local financial markets are less mature than those of developed countries.
“Right now people are reassessing what in the future will be a good investment,” Liqian Ren, leader of quantitative investment at WisdomTree, said in an interview last week.
“Since the beginning of last year, people are starting to realize real estate prices are not going up,” Ren said. “I don’t think it’s the lack of confidence. For many people they still have money in the bank.”
The broader Hang Seng Mainland Properties Index rose as much as 4.76%, but later moderated its gains.
The PBOC meeting on Thursday was attended by representatives of eight companies, including Longfor and Country Garden, the central bank said in a statement. Other attendees included diary giant Yili Group, aluminum products manufacturer China Hongqiao Group and electrical components manufacturer Chint Group.
At the symposium, PBOC governor Pan Gongsheng said the central bank will promote the expansion of private business bond financing support instruments, and strengthen the financial market to support their development.
This is the latest move by the central government to boost market confidence and vow support for private businesses and the real estate sector amid signs of slowing growth.
At the Politburo meeting on July 24, the top leadership promised to “adjust and optimize policies” to boost the beleaguered property sector, as well as introduce measures to promote private investment.
Separately, China’s state planner, the National Development and Reform Commission, also released a 17-point statement, and pledged to encourage more private capital into the construction of major national projects.
Days before, the government and the Communist Party issued a rare joint pledge vowing to treat private companies the same as state-owned enterprises, and ensure fair treatment in areas like intellectual property, financing and labor supply.
Read more about China from CNBC Pro
In the latest measures released Thursday, the PBOC said China’s Interbank Market Dealers Association will continue to increase the bond financing support tools to “accelerate the innovation of the bond market,” and “meet the diversified financing needs of private enterprises.”
Pan urged financial institutions to “actively create a good atmosphere” to support the development and growth of private firms and understand their needs better.
“It is necessary to accurately implement differentiated housing credit policies, meet the reasonable financing needs of private real estate enterprises, and promote the stable and healthy development of the real estate industry,” the PBOC said, according to a Google translation.
BEIJING — China’s housing ministry has announced plans to make it easier for people to buy property.
The news, out late Thursday, indicates how different levels of government are starting to act just days after Beijing signaled a shift away from its crackdown on real estate speculation.
related investing news
The planned measures include easing purchase restrictions for people wanting to buy a second house, and reducing down payment ratios for first-time homebuyers, according to an article on the Ministry of Housing and Urban-Rural Development’s website.
In an effort to reduce speculation in its massive property market, China has made it much harder for people to buy a second house.
Mortgage rates for the second purchase can be a full percentage point higher than for the first, while the second-home down payment ratio can skyrocket to 70% or 80% in large cities, according to Natixis.
The housing ministry article referred to comments from its minister Ni Hong at a recent meeting with eight state-owned and non-state-owned companies in construction and real estate.
Since it was a meeting at the central government ministry level, it did not discuss policies for individual cities, said Bruce Pang, chief economist and head of research for Greater China at JLL.
But he expects Beijing will encourage local governments to announce real estate policy changes that fit their specific situation. Pang also pointed out that including construction companies at the meeting emphasized their role in promoting investment and stabilizing growth.
China has not yet announced formal measures for supporting real estate. However, top level leaders on Monday signaled a greater focus on housing demand, rather than supply.
We continue to expect the property sector rally to continue and advise investors to focus on beta names within the property sector.
The readout of Monday’s Politburo meeting also removed the phrase “houses are for living in, not speculation,” which has been a mantra for Beijing’s tight stance and efforts to rein in developers’ high reliance on debt for growth.
“It seems to us that [the housing ministry] is quick in response this time and also gets bolder on relaxing property policies,” Jizhou Dong, China property research analyst at Nomura, said in a note Friday.
Given such speed, Dong expects markets are anticipating specific policy implementation in cities such as Shanghai or Guangzhou.
“We continue to expect the property sector rally to continue and advise investors to focus on beta names within the property sector,” Nomura’s Dong said.
Those stocks include U.S.-listed Ke Holdings, as well as Hong Kong-listed Longfor and China Overseas Land and Investment, the report said, noting Nomura has a “buy” rating on all three.
“We still advise investors to stay away from weaker privately-owned developers.”
A Nanjing Road pedestrian street on October 1, 2022 in Shanghai, China.
Yan Daming | Visual China Group | Getty Images
Chinese stocks soared Tuesday as Beijing pledged to ramp up measures to bolster China’s sputtering economy.
Hong Kong’s Hang Seng Index surged more than 3%, China’s tech-heavy ChiNext rose 1.8% and the Shanghai Composite Index increased 1.81% on Tuesday morning in Asia.
A day earlier, Chinese real estate stocks tumbled on renewed debt fears. The Chinese government cracked down on the property sector’s debt levels in August 2020.
The stock rebound comes after China’s top leaders pledged on Monday to ramp up policy support to boost domestic consumption as the post Covid rebound has been slower than expected.
China’s top leaders met Monday for the much-anticipated Politburo meeting and hinted at moves to “adjust and optimize” property policy in what the leadership called a “torturous” economic recovery.
State news agency Xinhua quoted the 24-member Politburo as saying “the economy is facing new difficulties and challenges.” That’s mainly due to weak domestic demand, operational challenges for companies as well as “a grim and complex external environment,” it said.
“The meeting emphasized that it is necessary to actively expand domestic demand, give full play to the basic role of consumption in driving economic growth, expand consumption by increasing residents’ income,” according to Xinhua.
“It is necessary to boost the consumption of automobiles, electronic products, and home furnishing, and promote the consumption of services such as sports, leisure, and cultural tourism,” said the report.
Hong Kong-listed shares of internet giants rose on Tuesday. Alibaba shares soared 4.7%, while Tencent was up nearly 4%. Meituan and Baidu shares were higher by 5.7% and 6.8% respectively.
In the electric vehicle space, Xpeng soared 11%, Li Auto was up 4.15% and BYD rose 2%.
Read more about China from CNBC Pro
“This is a reconfirmation that the [Chinese] policymakers have heard the market concern on more support needed for the domestic economy,” said Xiaolin Chen, head of international at KraneShares, on CNBC’s “Street Signs Asia” Tuesday.
“They want to achieve the 5% GDP target of this year. The first job they need to do is to create jobs for the labor force in China,” said Chen.
“I do certainly see some encouraging language released from the statement that removed a lot of the concerns of people having a high focus on real estate market, employment, private investment, and so on. So far, the language has been encouraging.”
BEIJING — China needs to do more in order to fix its real estate problems, the International Monetary Fund said Friday.
The property market contributes to about a quarter of China’s GDP and has been a drag on growth, especially since Beijing cracked down on developers’ high reliance on debt in 2020.
“Authorities’ recent policy measures are welcome, but in our view additional action will be needed in order to end the real estate crisis,” Thomas Helbling, deputy director in the IMF’s Asia Pacific Department, said in a briefing.
“If you look at the measures, a lot of them address financing issues for the developers that are still in relatively good financial health, so that will help,” he added in an interview with CNBC. “But the problems of the property developers’ facing severe financial difficulties are not yet addressed. The issue of the large stock of unfinished housing more broadly is not yet addressed.”
Chinese authorities subsequently emphasized the need to help developers finish building those pre-sold apartments. Still, residential floor space sold in China dropped by nearly 27% last year, while real estate investment fell by 10%, according to official numbers.
“I think it would be helpful to point to a way out and … how the restructuring could be done and who will absorb losses if there are any losses,” Helbling said. He also called for additional measures to address the large stock of unfinished apartments.
Read more about China from CNBC Pro
“Otherwise the sector will continue to slump and remain a risk and also constrain households that are overexposed to the property sector, and will have cash tied up and their savings tied up which will be a handicap for the broader economic recovery,” he said.
Helbling declined to name a specific timeframe within which authorities needed to act before the situation got much worse.
“The sooner you address downside risks the better.”
The IMF analysis was part of the organization’s latest report on China, following annual discussions with Chinese officials that ended in November.
The officials pushed back on the IMF’s real estate assessment, according to a statement in the IMF report by Zhengxin Zhang, executive director for People’s Republic of China, and Xuefei Bai, senior advisor to the executive director, dated Jan. 12.
China’s property market has generally operated smoothly and “is not in a ‘crisis’ situation,” the statement said, casting the sector’s situation as “a natural evolution of ‘deleveraging and destocking’ in the past few years.”
“The related risks are local and only concern individual firms, and their impact on the rest of the world has been relatively small,” the central bank representatives said. Looking ahead, the Chinese side said they would work toward ensuring the delivery of completed apartments, and merging developers.
Chinese property developers such as Country Garden, Longfor and R&F Properties have seen their shares nearly double or more over the last 60 trading days — about three months, according to Wind Information. But trading in shares of one-time giants Evergrande, Shimao and Sunac have been halted since March 2022.
The IMF report pointed out that a significant portion of investors in Chinese developers’ bonds have been affected.
“As of November 2022, developers that have already defaulted or are likely to default — with average bond prices below 40 percent of face value — represented 38 percent of the 2020 market share of firms with available bond pricing,” the report said.
Read more about China from CNBC Pro
“The sector’s contraction is also leading to strains in local governments. Falling land sale revenues have reduced their fiscal capacity at the same time as local government financing vehicles (LGFVs) have also significantly increased land purchases.”
Shoppers walk through a street market in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
Hong Kong stocks kicked off 2023 with the most gains they’ve seen in the first trading session of a year since 2018.
The Hang Seng index on Tuesday gained 1.84%, or 363.88 points — its biggest first-day gain since January 2018, when the index rose nearly 2%.
related investing news
That signaled an improved outlook as China continues to reopen despite a nationwide surge in Covid infections.
“While it is inevitable to see further surges and more widespread in inflection at the initial stage of opening, the outlook for the Chinese economy has brightened for 2023,” Redmond Wong, Saxo Capital Markets greater China market strategist, said in a note.
“In addition to the reopening, China has intensified its effort to support the distressed property sector and given property developers access to credits and equity financing which had been denied to them for the most part of 2022,” Wong wrote.
Property and technology stocks continued to lift the Hang Seng index, which rose more than 3% in Wednesday’s session. The index exceeded 20,600, the highest level it’s seen since July 29, according to Refinitiv data.
The moves followed reports of Chinese officials planning to provide further policy support for ailing real estate developers.
Technology stocks also rallied, with shares of Alibaba rising 8% after Chinese regulators approved Ant Group‘s plan to more than double its registered capital, a sign of progress in resolving regulators’ concerns.
Electric vehicle maker Baidu rose more than 8%; Chinese video and gaming app Bilibili gained nearly 9%; Netease rose more than 5%; JD.com climbed 7%; and Tencent also rose around 4%.
The Hang Seng rally came after Chinese Finance Minister Liu Kun told Xinhua in an interview that there will be more fiscal policy support.
Shoppers purchase festive sweets ahead of Lunar New Year at a street stall in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images
Bloomberg | Bloomberg | Getty Images
The government will work on expanding and improving the “effectiveness of the proactive fiscal policy to cope with multiple challenges ahead,” the minister was quoted as saying.
Chinese investment bank Guotai Junan Securities said the performance of Hong Kong stocks will affect the wider global market.
“The Hang Seng Index may lead other major global stock indices in 2023, with around 30% expected return,” analysts at the firm said in a Wednesday note.
“The index valuation may see further rerates, and we expect the HSI to recover to its previous level before Jun. 2022,” they said in the note.
China’s reopening is a positive sign for Asian stocks and global economic growth in 2023, but it carries also inflationary risks, thanks to China’s role in driving demand for the global commodities market, analysts at Raymond James said in a note.
Weaker growth in the Chinese economy will likely increase the chances of a more dovish Federal Reserve, while stronger growth will raise the possibility of a “stubbornly hawkish Fed,” equity strategist Tavis McCourt wrote.
“Volatility seems certain with equities finishing either modestly higher or modestly lower depending on the rate path,” McCourt said in the note.
China’s housing prices fell in October due primarily to falling prices in less developed, so-called Tier-3 cities, according to Goldman Sachs analysis of official data.
BEIJING — China’s real estate sector isn’t yet poised for a quick recovery, despite a rally this month in stocks of major property developers.
That’s because recent support by Beijing don’t directly resolve the main problem of falling home sales and prices, analysts say.
Last week, property developer stocks surged after news the central bank and banking regulator issued measures that encouraged banks to help the real estate industry. It comes alongside other support measures earlier this month.
Shares of Country Garden, the biggest Chinese developer by sales, have more than doubled in November, and those of Longfor have surged by about 90%. The stocks have already given back some of this month’s gains.
Meanwhile, iron ore futures surged by about 16% this month — Morgan Stanley analysts say about 40% of China’s steel consumption is used in property construction.
The situation is one of “strong expectations, but weak reality,” and market prices have deviated from the fundamentals, Sheng Mingxing, ferrous metals analyst at Nanhua Research Institute, said in Chinese translated by CNBC.
Sheng said it’s important to watch whether apartments can be completed and delivered during the peak construction period of March and April.
This really is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future…
The new measures, widely reported in China but not officially released, stipulate loan extensions, call for treating developers the same whether they are state-owned or not and support bond issuance. Neither regulator responded to CNBC’s request for comment.
“This really is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future — a temporary liquidity relief rather than a fundamental turnaround,” Hong Kong-based analyst Samuel Hui, director, Asia-Pacific corporates, Fitch Ratings, said Wednesday.
“The key is that we still need the fundamental underlying home sales market to improve,” he said, noting homebuyer confidence relies on whether developers can finish building and delivering apartments.
Earlier this year, many homebuyers refused to continue paying mortgages on apartments when construction was delayed. Homes in China are typically sold ahead of completion, generating a major source of cash flow for developers.
Analysts differ on when China’s property market can recover.
Fitch said a timeline “remains highly uncertain,” while S&P Global Ratings’ Senior Director Lawrence Lu expects a recovery could occur in the second half of next year.
“If this policy is implemented promptly, this will stop the downward spiral to the developers, this will help to restore the investors’ confidence [in] the developers,” he said.
Residential housing sales for the first 10 months of the year dropped by 28.2% from a year ago, the National Bureau of Statistics said last week. S&P Global Ratings said in July it expects a 30% plunge in sales for 2022, worse than in 2008 when sales fell by about 20%.
A slowdown in economic growth, uncertainty about ongoing Covid controls and worries about future income have dampened appetite for buying homes.
Adding to those worries are falling prices.
Housing prices across 70 cities fell by 1.4% in October from a year ago, according to Goldman Sachs analysis of data released Wednesday.
“Despite more local housing easing measures in recent months,” the analysts said, “we believe the property markets in lower-tier cities still face strong headwinds from weaker growth fundamentals than large cities, including net population outflows and potential oversupply problems.”
The report said housing prices in the largest, tier-1 cities rose by 3.1% in October from September, while Tier-3 cities saw a 3.9% drop during that time.
The property sector, including related industries, accounts for about a quarter of China’s GDP, according to analyst estimates.
“I think the real estate sector will become lesser of a drag to the economy in 2023,” Tommy Wu, senior China economist at Commerzbank AG, said Wednesday.
“It is too early to tell whether the measures rolled out so far will be enough to rescue the real estate sector,” he said. “But it feels more assuring now because it seems more likely that more forceful measures will be rolled out if the real estate downturn still doesn’t turn around meaningful in the coming months.”
Ultimately, China’s real estate industry is undergoing a state-directed transformation — to a smaller part of the economy and a business model far less reliant on selling apartments before they’re completed.
The property market has shrunk by roughly one-third compared to last year, and will likely remain the same size next year, S&P’s Lu said.
State-owned developers have fared better during the downturn, he pointed out.
In the first three quarters of the year, Lu said sales by state-owned developers fell by 25%, compared to the 58% sales decline for developers not owned by the state.
And despite recent policy moves, Beijing’s stance remains firm in dissuading home purchases at scale.
Whether it’s messaging from the National Bureau of Statistics or the People’s Bank of China, official announcements this month reiterated that houses are for living in, not speculation — the mantra that marked the early beginnings of the real estate market slump.
