Chinese property shares rose on Thursday, strengthened by the latest relaxation in credit measures to support the embattled real estate industry, but few market participants expected them to overcome banks' reluctance to lend.
Authorities eased rules for bank loans on commercial property on Wednesday as they sought to ease a liquidity crunch that real estate firms have grappled with since mid-2021, when the government first sought to rein in ballooning debt.
Although property developers and analysts welcomed the new measures, they were sceptical about their immediate impact, saying banks have been reluctant to lend to most private developers, despite regulators' repeated calls to do so.
Analysts said the policies do not go far enough to change the fundamental problem of weak confidence and fragile demand of homebuyers, which is weighing on home sales, property firms' major source of income.
"While this could help to ease liquidity risk of indebted developers, property demand will need to be stronger for home prices and sales, and thus the sector, to recover," UBS analyst John Lam said in a note.
This week's new measures included allowing developers to use the loans to repay existing loans and bonds, while raising the amount they can borrow to 70% of the appraised asset value from 50% earlier.
China's CSI 300 Real Estate Index (.CSI100952) closed up 5.9%, while Hong Kong's Hang Seng Mainland Properties Index (.HSMPI) firmed 4.4%.
Guangzhou R&F Properties (2777.HK) surged 17.2% while Sino-Ocean Group (3377.HK) and Seazen Group (1030.HK) both rose more than 12%. Two of the largest private developers, Country Garden (2007.HK) and Longfor Group (0960.HK), gained 5.9% and 8.1%, respectively.
Despite the gains, developers and analysts say the troubled companies may have already pledged most of their quality commercial assets for other debt.
"We have contacted some banks this morning. They didn't give a positive response," said an executive at a developer that has defaulted on its debt, speaking on condition of anonymity as he was not authorised to talk to the media.
"Unless the central government forces the banks to lend, they wouldn't want to take the risk."
Banks have been very strict in not lending to commercial properties that are in bad locations or have poor operations since the debt crisis, the executive added.
China's liquidity crisis has led many developers to default on, or delay, debt payments, as they struggle to sell apartments and raise funds.
Despite Beijing's recent support measures, such as easier access to cash for developers, cuts in home mortgage rates and relaxed rules on buying homes, the market has shown little sign of stabilising, with sales staying weak and yet more defaults.
Valuations have also slumped in the last few years, making it impossible to increase the lending from existing loans, even though developers may now borrow up to 70% of the property value, the executive at the developer added.
UBS's Lam expected the credit support policy to be positive for private developers with high commercial property assets exposure, such as Longfor and Seazen.
Nomura said the biggest hurdle for a real property recovery was the large scale of pre-sold but unfinished homes in low-tier cities. The bank estimated completing construction of such homes nationwide would require 3.2 trillion yuan.
"Given the sheer funding gap faced by developers to secure the successful delivery of pre-sold homes, we doubt whether banks are the correct choice for addressing this issue," it said in a research note.
It added that it believed Beijing would eventually need to reach into its own pockets to fill the gap, using printed money from the central bank.
($1=7.1600 Chinese yuan renminbi)
