HONG KONG – Chinese property shares extended a rally on Thursday as the market cheered pledges by Beijing’s top economic leaders to shore up the battered real estate sector amid growing pressures at home and abroad.
Vice Premier Liu He, China’s economic tsar, said on Wednesday the government needs to reduce risks in the industry and proposed measures to facilitate a new development model for the sector.
In the meeting of the Financial Stability and Development Committee, a regulatory body under the State Council, Liu urged the roll-out of market-friendly policies to support the economy.
Liu’s pledge received widespread support from other top institutions, including the central bank and securities and currency regulators.
That pushed up the Hang Seng Mainland Properties Index 14.8% by midday on Thursday, versus a 5.8% gain in the main Hang Seng Index. The sub-index had already jumped 14.7% on Wednesday.
“The shares that are bouncing a lot are also those that have dropped a lot previously, and they’re still at low levels now,” said Thomas Kwok, head of equity business of CHIEF Securities. “Is the rally sustainable? That’s a concern, because we may not see clear policies that will fundamentally change the liquidity problem for the developers.”
Sunac China, the nation’s No.3 property developer by sales, jumped 47.5% to a one-week high, after losing nearly 40% this month on debt repayment concerns.
Top developer Country Garden and embattled China Evergrande Group both rose 22%.
The real estate sector, a key driver of growth, has struggled for months as Beijing’s campaign to reduce high debt levels triggered a liquidity crisis among some major developers, resulting in bond defaults and shelved projects.
After Liu’s comment, the banking and insurance regulator also said on Wednesday it would seek to stabilise land and home prices, transform the real estate sector and encourage mergers and acquisition loans for developers to purchase distressed assets.
The finance ministry later said China was putting a planned property tax trial this year on ice, state-run Xinhua news agency reported.
Trading in property stocks has been very volatile in recent months. They firmed early this year on expectations that more easing in the sector is coming, but plummeted this month due to continued worries over the liquidity risks in the companies.
Citi, however, cautioned a broad-based easing with flooding liquidity for property is nearly impossible, and, despite the encouraging tones from Wednesday, saw no substantial policy changes.
“Recent marginal fine-tunes…are not game-changers,” the investment bank said in a report. “The best to expect for now is targeted downside protection for a few (company) names through coordination with local government and financial institutions.”
(Reporting by Clare Jim; Editing by Sam Holmes)