Chinese real estate stocks rally on bailout plan

Regulators have revealed financial measures that would help the sector avoid a credit crunch

Chinese property stocks and bonds rose sharply on Monday as banking regulators revealed a 16-step support package for the indebted sector.

The financial measures aimed at boosting liquidity in the real estate sector were hailed by some analysts as a “turning point” and caused the property index to soar to a two-month high.

The Hang Seng Mainland Properties Index jumped over 16%, while Hong Kong-listed Country Garden, one of China’s largest developers, gained more than 36%. Share prices of many other Chinese property developers have also posted double-digit gains.

The bailout plan comes as the cash-strapped property sector, which accounts for a quarter of the Chinese economy, has struggled with defaults and stalled projects, hitting market confidence and dragging down the growth of the world’s second-largest economy.

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According to some media reports, the 16-point relief plan outlined by the People's Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) includes loan repayment extensions. The regulators will extend a year-end deadline for lenders to cap their share of loans in the real estate sector.

The Financial Times has reported, citing a document signed by the PBOC and CBIRC, that lenders will “now have an undetermined amount of time to limit the share of their outstanding real estate loans at major banks to 40% of total loans and their outstanding mortgages 32.5%.”

The move is expected to alleviate pressure on the industry, avoiding a credit crunch, and could reportedly affect 26% of China’s total lending.

Citi said in a note that the package indicates a major shift in the policy of Chinese regulators towards developers from “imposing restrictions” to “providing support”, and “rescuing projects, but not developers” to “rescuing both developers and projects”.

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