China Property Stocks Gauge Jumps on Proposal for Home Purchases

The shares of Chinese developers experienced a significant boost due to optimism that Beijing will implement policy support measures for the purchase of unsold homes from distressed builders. [para. 1] This positive sentiment is reflected in a Bloomberg gauge of Chinese real estate stocks, which rose by as much as 10.7%, reaching its highest level since December 2023. Specifically, Longfor Group Holdings Ltd. advanced by 15% in Hong Kong, and China Vanke Co. saw a gain of 16%. [para. 2]

China is contemplating a proposal for local governments nationwide to purchase millions of unsold homes, according to sources familiar with the situation. This would represent one of the most ambitious efforts to date aimed at rescuing the struggling property market. However, the plan's details and feasibility are still under discussion, and it could take several months to finalize if policymakers decide to proceed. [para. 3] JPMorgan Chase & Co. analyst Karl Chan commented on the potential excitement stemming from the possibility to "expand the scale," though he expressed skepticism about whether the scale would be substantial enough to trigger a market recovery. Nevertheless, he acknowledged that the direction of the proposed plan seems appropriate. [para. 4]

Recent months have seen Beijing introducing various measures to support the real estate sector. For instance, some major cities have recently lifted restrictions on home purchases. Despite these efforts, a significant concern among investors remains the large quantity of unsold homes, attributed to weak demand. [para. 5] New-home prices in 70 cities, excluding state-subsidized housing, dropped by 2.7% year-on-year in March. Additionally, the value of new-home sales from the top 100 real estate firms plummeted by about 45% from the previous year, reaching 312.2 billion yuan ($43.2 billion), following a 46% decline in the previous month. This data was provided by China Real Estate Information Corp. [para. 6]

Raymond Cheng, head of China property research at CGS International Securities HK, mentioned that the proposed move would be a crucial step for rescuing the property sector. It could tackle issues of excess inventory and liquidity problems faced by developers. Cheng estimated that around 1.8 trillion yuan of funding would be required, assuming five million units are acquired from developers. [para. 7] The optimism extended to other developers as well, with Sino-Ocean Group Holdings Ltd. soaring by 44% and CIFI Holdings Group Co. climbing by 24%. [para. 8]

Editor Michael Bellart, who can be contacted at michaelbellart@caixin.com, was responsible for this information. [para. 9]