China Moves to Lift Property Sector Amid Evergrande Crash Fears

Three big cities have eased home-buying curbs amid moves to bolster the real estate sector after a court ordered the liquidation of debt-laden property giant China Evergrande.

A state-backed property project has also received the first development loan under Beijing’s so-called “white-list” mechanism, state media reported.

The latest measures add to a string of supportive policies rolled out by the world’s second-largest economy over the past year to help revive the economically crucial property sector hit by an unprecedented debt crisis.

Despite those measures, the property market ended last year with the worst declines in new home prices in nearly nine years, casting a shadow over the hopes of broader economic recovery and renewing investor demands for stronger policy initiatives.

ALSO SEE: Will Evergrande Really be Liquidated? Not if China Says No

Analysts say a Hong Kong court’s decision on Monday to put property giant China Evergrande Group into liquidation could worsen the demand outlook as homebuyers take a cautious approach given uncertainty about the health of other private developers.

Two of China’s major cities, Suzhou and Shanghai, followed Guangzhou in easing home-buying restrictions, official media reported on Tuesday, in an effort to boost demand from homebuyers.

Investors were not excited by the new supports, however, with Hong Kong’s Hang Seng Mainland Properties Index and China’s CSI 300 Real Estate Index both falling 2.6% on Wednesday.

Loans for projects on state ‘white-list’

In another support measure, a loan worth 330 million yuan ($46 million) to a state-backed development was approved just a few working days after the government announced the “project white-list” mechanism, the official Securities Times reported on Wednesday.

Securities Times said Nanning city in Guangxi region had provided its first “project white-list” to local financial firms containing 107 developments. A project by state-backed Guangxi Beitou Industry & City Investment Group was granted a development loan from China Mingsheng Banking Corp.

The southwestern city of Chongqing had also come up with a ‘white-list’ of 314 projects, with a total of 83 billion yuan in financing required, the report added.

The rollout of funding support under this mechanism is being closely watched by a market reeling from a debt crisis since mid-2021 which resulted in unfinished homes and defaults, especially among privately owned developers.

Homebuyer concerns

The new measures come as analysts weigh the impact of the court’s order to put Evergrande, once China’s top-selling developer into liquidation with more than $300 billion in liabilities.

“We think that home-buyer concerns about purchasing pre-sold units from financially troubled developers that might not deliver the project in a timely fashion – that is a major reason that home sales are still sluggish,” Christopher Beddor, deputy China research director at Gavekal Economics, said.

“If nothing else, the headlines of the ordered liquidation in Hong Kong, that’s not going to have a great impact on homebuyer sentiment.”

The unfinished homes promised to buyers by Evergrande are, however, likely to be delivered because the government was making this a top priority for all developers, Jonathan Krane, at Krane Shares in New York, said.

“The long-term impact is that real estate will account for a smaller portion of China’s economy, to be replaced by other industries such as technology and consumer products and services.”

‘Bondholders face long wait for tiny payouts’

Besides the impact on home sales, S&P Global Ratings said in a report published on Wednesday Evergrande’s offshore creditors stand to receive a potentially tiny payout in a complicated liquidation process that could take years to play out.

“We assume offshore bondholders will get a few cents on the dollar once the liquidation plays out,” said Chang Li, S&P Global Ratings’ China corporates specialist. “They will likely yet have to wait years even for this thin payout.”

Evergrande did not immediately respond to a request for comment. The future of Evergrande’s liquidation process also hinges on the Hong Kong court decision being recognised in mainland China.

Evergrande stock and corporate bond trading remains suspended in Hong Kong.

S&P Global said Evergrande, as the offshore entity and a shareholder of the broader group, would only be paid after onshore creditors if its onshore entities were liquidated.

In its court arguments, Evergrande cited a Deloitte analysis in July that estimated a recovery rate of 3.4% if the developer were liquidated.

However, after Evergrande said in September its flagship unit and its chairman Hui Ka Yan were being investigated by the authorities for unspecified crimes, creditors now expect a recovery rate of less than 3%.

“The offshore parent, which is being liquidated, can only get repaid by extracting cash flow from the onshore entities, such as though dividends, the repayment of shareholder loans, or by selling equity,” the S&P report said.

“This is a moot point as the company is in financial deficit.”

Alvarez & Marsal has been appointed as Evergrande liquidator’s and said in a statement it would start meeting with Evergrande’s staff to begin a process.