Asian property market presents new investment opportunities as China announces support

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The Hang Seng Mainland Properties index experienced a dramatic fall over the past year, with scores dropping almost 41%. It was triggered by Beijing’s deleveraging campaign, which resulted in some significant property developers entering into bond defaults and shelved or left unfinished projects.

The housing market has been sluggish for some time now, but recent measures have started to show promise. New home prices stalled in February after edging up a month earlier, and mortgage applications reached their lowest level since November last year. Consumers continue waiting out this poor economy with cautiousness intact. The overall demand environment remains challenging; however, there are signs that things may be turning around.

China’s Vice Premier, Liu He, pledged to support quality property developers to acquire projects from distressed developers and reiterated that no property tax would be imposed this year. This has accelerated investors already in Hong Kong and mainland China. Developer stocks have soared immediately. Previously, there had been a property slump in Hong Kong and mainland China due to rising house prices and shelved and postponed projects. China’s stance aims to help more people become homeowners and be able to afford a home.

In a public address over the weekend, the Chinese ambassador to the US has renounced speculations that China is supporting Russia with military assistance and makes it clear that the ongoing conflict in Ukraine serves in nobody’s best interest. He assured the public that although China is supporting Russia with humanitarian aid on the ground, it is indeed not providing military assistance in any regard. China’s neutrality gives investors more assurance to invest in the Chinese markets.

To further boost investor confidence, China’s Xi Jinping hosted a CCP’s Central Committee Politburo meeting on measures to curb the spread of COVID-19 last week. He strongly urged that ‘more effective measures should be taken to achieve maximum effect in prevention and control with minimum cost’, and ‘reduce the impact on socio-economic development as much as possible’. Shenzhen announced immediately after the address that public transportation and economic activities will resume in 50% of the city’s region from Friday, March 18.

Dongguan followed suit shortly after with a similar press release. Although these are positive developments for the 2022 Chinese economy, the potential further spread of Covid cases still holds an exponential threat to its full recovery and growth. According to a news report by Asia Financial, ‘China property stocks soared on Thursday after the Ministry of Finance said a property tax trial won’t be expanded this year’.

The almost immediate 18% surge of the Hong Kong Hang Seng Mainland Properties Index caused positive ripple effects, which helped propel the 7% rise of the benchmark Hang Seng index. Other shares that flared up include:

  • Evergrande 17.8%
  • Sunac 59%
  • CIFI Holdings 32.9%
  • Country Garden Holdings 28.4%
  • Yango Group +10% – irrespective of their bond repayment default worth $94.62 million
  • Greenland Holdings 3.9%
  • China Vanke Co Ltd 7.5%

Reuters reported that although investors cheered this massive pledge to support the ‘bruised property market’, there is no guarantee that the rally is sustainable. Clear policies that will alter the liquidity issue for the developers need to be seen first. Trading in property stocks has been volatile lately. The sector strengthened early this year on expectations that more easing is coming but plummeted recently due to worries about liquidity risks at companies like these.

Shortly after Liu’s comment, the banking and insurance regulator further announced that they would seek to stabilise land prices, transform the real estate sector, and encourage mergers by loan companies for developers who want buy-undervalued properties from distressed assets. This was followed by further relief when the Ministry of Finance announced shelving the planned property tax trial for the remainder of the year.