Growth Dragons Weekly: China's Boldest Real Estate Rescue Move
Here’s what happened in Growth Dragons this week:
China's Boldest Real Estate Rescue Move
China and Saudi Arabia Advance Yuan Trading Collaboration
Baidu's AI Investment Falls Short
Alibaba Missteps
#1 China's Boldest Real Estate Rescue Move
The Chinese real estate market has experienced persistent deterioration, with the price of new homes in 70 medium and large cities falling by 0.4% month-on-month. Overall, home sales at the country’s top 100 developers plummeted by 27.5% year-on-year in October to 406.7 billion yuan (US$56 billion), according to data compiled by the China Real Estate Index System.
The Chinese government has also been cutting mortgage rates and lowering loan thresholds for first-time buyers in an attempt to stimulate purchases, but without success.
The recent initiative to address the property sector crisis marks the most significant move yet, with the drafting of a financial aid list for 50 developers, including prominent firms like Chinese Vanke and Country Garden. This strategy aims to cushion China’s economy against the shock of potential defaults. To facilitate this, authorities are considering allowing banks to provide unsecured short-term loans to these developers. Such a measure, bypassing the need for collateral like land or property, would enable these real estate firms to focus on debt repayment.
The funding gap in the Chinese real estate sector is substantial, estimated at 3.2 trillion yuan (approximately $451 billion). This amount is necessary to complete about 20 million pre-sold but unfinished units nationwide.
Following this development, Country Garden's shares in Hong Kong experienced a 24% surge on November 23, marking their best performance in a year. Additionally, its 5.625% dollar bond due in 2030 saw a 10% increase, following a 40% jump in the previous session. A related index tracking property developer shares also climbed nearly 9%.
This policy could be a game changer. Once developers can clear their debts and complete pending projects, their operations can resume more normally. However, the recovery of the property market and stabilization of prices are critical for demand to rebound. Overall, these developments are promising signs for the sector.