- PBoC and CBIRC jointly announced to extend the financial support towards property market namely allowance of development and trust loans extension
- The extension itself was largely anticipated and incremental liquidity support will likely remain marginal; the longer-than-expected duration may hint for regulators’ greater tolerance over the slow recovery in the physical market
- Unchanged policy tone from the Q&A section of the announcement’s media briefing indicate regulators’ likely continuance of a gradual and city-selective approach on property-related policies
- Top picks: Longfor (960 HK), CR Land (1109 HK), COLI (688 HK) and Yuexiu (123 HK)
What’s new?
PBoC and CBIRC jointed announced the extension of the applicable period for relevant policies under the “16 Financial Measures” (see link for full policy). These namely include 1) existing development and trust loan extensions – for which those that come due on or before 31 Dec 2024 are encouraged to enter into commercial negotiations and can be extended for another year (vs previous of 6-mth from announcement in Nov-2022); and 2) financial institutions and person responsible for the provision of special loan on or before 31 Dec 2024 in accordance with requirements under the “16 Financial Measures” will not be held accountable if the loan becomes bad debt, provided that relevant due diligence has been fulfilled.
The regulators have also reiterated their policy stance during the Q&A session of the media briefing for their announcement to 1) support genuine and improvement demand via city-selective policy support; 2) maintain reasonable property financing environment; 3) increase monetary support on project delivery; 4) resolve industry risks in a market-oriented way; and 5) promote stable and healthy development of the property market.
Our view:
An expected move and will likely derive limited incremental liquidity. The extension of the measures itself was largely anticipated and majority of the POE developers we checked have continued their negotiations with financial institutions and have secured some extensions for loans that comes due beyond the original deadline (May 23). The official notice would clarify and reiterate regulators’ stance for banks to continue offering liquidity support to developers, but the relevant terms remains the same (i.e. only for existing loans, with the aim to promote project delivery), aside from the longer duration (from 6-mth of announcement date to c.1.5 years from notice). As such, we do not expect a substantial pickup in liquidity support towards the sector.
Longer-than-expected extension in duration may hint for regulators’ tolerance over a slow property market recovery. The 1.5 year extension in duration of this liquidity support came as a surprise to us and we do not necessarily view this as a positive development. Instead, we believe this may be a hint for regulators’ tolerance for the current “weak recovery” trend of the property market. This, coupled with the reiterated policy tone from PBOC and CBIRC during the Q&A session in the media briefing for the announcement, indicates regulator’s unchanged stance to only maintain a stable property sector and not to cause a drag on China’s economic growth. Despite market speculations over more property policy support and potentially a stimulus package ahead, we believe the maintenance of an accommodative property policy environment and a continually gradual and city-selective policy approach may be a more likely outcome.
What could still be on the table? Further easing in selective cities, and potentially urban redevelopment. We believe policies up next will likely continue to focus on the rejuvenation of replacement demand via further easing of purchase and resale restrictions (see below chart for existing policy restrictions in cities we track). Having said that, as highlighted in our previous report (see link for details), while it is a reasonable direction to head towards, the actual impact is questionable as most homeowners may continue to stay on the sideline for now as they are not in a hurry to enter the market in midst of the current weak homebuyer sentiment. There may also be possibility to see some resumption of urban redevelopment activities (see news link) that may release some replacement demand, but the size and the willingness of regulators in the supporting the scheme remains questionable and we believe will likely be carried out at a gradual and city-selective manner as well.
Watch for entry point on quality names amid volatility. Near-term share price performance will likely remain volatile given the current fragile investor sentiment and may create decent entry points for quality names with sufficient quality saleable resources to outperform in this continually polarised market trend – Longfor (960 HK), CR Land (1109 HK), COLI (688 HK), and Yuexiu (123 HK).