(Bloomberg) -- Shares of Chinese real estate developers rallied on Thursday, following reports that regulators may ease restrictions on their access to pre-sale funds and as lenders cut borrowing costs.
A Bloomberg Intelligence gauge of mainland and Hong Kong-listed developers jumped as much as 4.1%, set for a third day of gains. Sunac China Holdings, Logan Group Co. and Shimao Group Holdings all surged more than 10%.
Chinese lenders cutting the five-year loan prime rate on Thursday, a benchmark for long-term loans including mortgages, also supported developers. The one-year rate was also lowered.
Here are what analysts are saying about the potential easing of funding restrictions and the cut in loan prime rates:
Bloomberg Intelligence
- Developers will benefit as the LPR cuts could lower their funding costs, especially as many developers have sizable amount of bank loans, analyst Patrick Wong says
- Lower mortgage rates will also support housing demand
Shenzhen Enjoy Equity Investment Fund Management Co.
- Low valuation sectors like property, banks and consumers may experience bigger boost from policy easing, fund manager Li Xuetong says
- Giving developers on the brink some breathing space will also help improve banks’ assets
- It’s a good idea to go slow on the 5-year LPR cut as the authorities would want to take things one step at a time without depleting their tool box
Citigroup
- The potential easing will likely be executed at the local level on a case-by-case basis without a formal announcement, according to analysts including Griffin Chan
- The windows to implement the new rules could come late January before the Lunar New Year, and mid-March after the NPC annual meeting; the sector could see a better 2022 versus 2021 given more policy clarity since December
- News to have positive impact on share prices; Citi’s top picks include China Resources Land, Longfor, CIFI, Logan
Jefferies
- The potential new rule on escrow funds is one of the last things the government can relax, and should give a clear direction to local governments on their implementation, analysts including Stephen Cheung write in a note
- Escrow funds account for 30-50% of developer’s pre-sales, thus a easing on the usage will ease property developer’s short-term liquidity
- However, “it would be hard to form a persistent near-term uptrend until the news is confirmed given the fragile investor sentiment.”
CGS-CIMB
- The potential new rule, if implemented, will release about $12 billion for 17 developers that CGS-CIMB covers, allowing them to pay short-term debt, says CGS-CIMB analyst analysts including Raymond Cheng
- The news would be a near-term positive for the sector as eased rules could free up a meaningful amount of funds to developers: CGS-CIMB
- CIFI, KWG, Logan and Times -- firms that have medium liquidity risk -- to be key beneficiaries of the new rule, if implemented
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