Chinese Property Stocks Surge as Policymakers Signal Possible Easing of Purchase Restrictions

Chinese property stocks experienced a significant surge in both the mainland and Hong Kong markets after top policymakers adopted a more positive tone towards the industry, raising hopes that long-standing purchase restrictions in major cities may be loosened.

According to data provider Shanghai DZH, a gauge tracking home builders in the mainland market advanced by 4.2% on Tuesday morning, outpacing the 2.5% gain in the CSI 300 Index. In Hong Kong, shares of prominent companies like China Overseas Land and Development soared by 11%, Longfor Group surged by 21%, and Country Garden Holdings rallied by 15%. This impressive performance contrasted with the 3.4% gain in the Hang Seng Index.

The change in sentiment comes after a recent Politburo meeting chaired by President Xi Jinping, during which a more supportive stance towards the property market was signaled. Interestingly, the customary phrase "housing is for living, not for speculation" was notably absent from the statement released after the meeting. Analysts from Shenwan Hongyuan Group and Saxo Markets observed that the omission, coupled with an acknowledgment of a "significant" change in supply and demand within the property market, suggests potential recalibration of tightening measures.

One crucial policy element that may be revisited is the high down-payment ratios currently in place. For instance, second homes in major cities carry a down-payment ratio as high as 50%, while smaller cities have a ratio of 30%. Analysts at Saxo noted that the government may consider reducing these ratios as part of the potential policy adjustments.

Michael Plowgian, deputy assistant secretary for international tax affairs at the Treasury, faced tough questions from the committee about the undertaxed payments rule (UTPR).

In response to concerns from the House Ways & Means Committee regarding the undertaxed payments rule (UTPR), Michael Plowgian, deputy assistant secretary for international tax affairs at the Treasury, stated that Congress was consulted on the UTPR during the negotiations. However, Ways & Means Committee Chairman, Jason Smith, disagreed, asserting that Republican members were not consulted before the decision. This raised further concerns among lawmakers about the impact of the proposed changes on US companies.

The positive signals from the recent July Politburo meeting, which typically sets the policy tone for the second half of the year, come as a relief to cash-strapped developers who have struggled to secure funding due to Beijing's "three redlines" deleveraging policy. Property stocks have been hit hard in recent weeks as fears about the sector's financial health spooked investors. Companies like China Evergrande Group, which posted a loss of 105.9 billion yuan (US$14.7 billion) last year, Sino Ocean, which defaulted on an offshore bond repayment, and Dalian Wanda Group, which is being forced to dispose of assets to meet debt payments, have faced significant challenges.

Investors have been calling for large-scale stimulus measures after China's economy grew at a slower-than-expected pace in the second quarter, leading to sell-offs in the stock market. The property market, along with related industries, accounts for about a quarter of China's economy, making it a critical focus for policymakers. So far, the piecemeal relaxation measures, including easing purchase restrictions in smaller cities and extending favorable loan policies, have not been enough to impress investors.

Analysts anticipate that policymakers may now consider adjusting and optimizing the property market policies in tier-one and -two cities, given the change in policy tone and the mismatch with the current demand and supply situation. Goldman Sachs expects further policy easing measures, including monetary, fiscal, property, and consumption support, to be rolled out in the next few months. Investors will closely monitor how the Chinese government navigates the property market challenges and what measures are implemented to bolster economic recovery and stability.

By fLEXI tEAM