Beijing’s proposal to help the country’s troubled real estate sector has spurred a second day of gains in Chinese property shares.
Chinese property developer Sunac was downgraded on Thursday. However, the industry’s share prices surged again in Hong Kong and China following Vice Premier Liu He’s call for government intervention in the sector on Wednesday.
Evergrande’s near-collapse shows that China’s Communist Party leadership is growing concerned about the country’s property sector and economy, according to Liu.
By Hong Kong’s lunchtime on Thursday, Hang Seng mainland properties had risen 14.8%, while the broader Hang Seng index had up 5.8%. On Wednesday, the sub-index had already surged by 14.7% on the previous day.
Also, after being battered for months, the technology sector’s stocks are showing signs of recovery. On Wednesday, Hong Kong’s Hang Seng tech index surged 22 percent, although it has lost half of its value since 2013.
Despite this, some investors think that China’s largest developers will continue to struggle and that the property market’s recent gains may not be sustainable.
On Thursday, credit rating agency S&P downgraded Sunac China, China’s third-largest property developer by sales, to a B- rating because of fears that it could not meet its almost $4 billion in debt payments this year. This would make it more difficult to borrow money.
Meanwhile, S&P analysts have reduced Sunac China’s liquidity rating to “poor” until they receive more information on the company’s refinancing plans.
According to their report, this will lead to a significant level of refinancing risk and an insufficient amount of cash for Sunac China Holdings Ltd. There is a fast-dwindling sense of trust in the market.”
Sunac’s Hong Kong stock was up 60% on Thursday afternoon, despite this negative assessment. Two other notable developers, Country Garden and Evergrande were also in the black by more than 20%.
As a consequence of Beijing’s efforts to reduce high debt levels, several big developers have experienced a liquidity problem and the cancellation of projects in the real estate sector, an important growth engine.
The banking and insurance regulator declared that it would stabilize land and housing prices, reform the real estate industry, and promote purchase loans for developers to acquire distressed assets after Liu’s remark.
State-run Reports from China’s state-run Xinhua news agency later said that the country had postponed testing the property tax this year.
Beijing’s uneasiness was clear in Liu’s efforts to stabilize the markets, according to Sinocism weekly author Bill Bishop.
Liu “I would be hesitant in concluding that this messaging indicates that the difficult days are over,” he added.
They’re attempting to convey a message that they don’t want markets to fall any lower, but “is it not evident this is a real shift or more of a calibration to stabilize things?” they ask.