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In Hong Kong, the stocks of Chinese real estate companies experienced a significant surge last week rising by as much as 7.9%. This increase was driven by investors' optimism that the Chinese government would introduce additional measures to support the struggling sector in the near future. The real estate industry, which used to be a key driver of economic growth, has been facing difficulties since April, following a brief period of improvement. The sector's decline can be attributed to a pessimistic economic outlook that has overshadowed the effects of policy interventions implemented in late 2022.
The China Economic Times, which is supported by the state, advocated for a revision of restrictions on home purchases in major cities. The publication referenced industry experts' opinions that such a move would assist in reducing the housing inventory in peripheral areas without causing a surge in prices in central regions.
Additionally, the newspaper, which is sponsored by the State Council (the cabinet of the Chinese government), stated that market participants anticipate the government to accelerate property stimulus measures in June. These measures aim to support "reasonable" demand from homebuyers and restore confidence in the market.
During the morning hours, shares of the prominent real estate developer Longfor Group experienced a substantial surge of 9.4%. Similarly, troubled counterparts Sunac China and KWG Group witnessed gains of 12.8% and 17.1% respectively. In comparison, the benchmark Hang Seng Index rose by 1.2%. On the mainland, real estate stocks listed on the CSI 300 Real Estate Index showed modest gains, increasing by 1.5%.
While investors welcomed any measures aimed at supporting the sector, which contributes a significant portion to the world's second-largest economy, some analysts expressed skepticism about their actual impact. This skepticism arises from the persistently weak homebuyer and overall consumer confidence, which could limit the effectiveness of such measures.
According to a report by Citi, the overall lack of confidence in the market is also negatively impacting property sales. The report states that in order for home sales to experience a rapid recovery, improved economic prospects and stable job expectations are essential prerequisites.
Citi anticipates that fiscal policy measures would be more effective than expansionary monetary policies in addressing the current situation. The real estate sector suffered a significant decline last year, resulting in developers defaulting on debts or bonds and halting the construction of pre-sold housing projects.
To stimulate demand, local governments have implemented numerous domestic policies since last year, and central banks have taken extensive measures in the second half to enhance liquidity and stabilize the property market. Despite experiencing a temporary surge due to the easing of strict COVID-19 restrictions in December, the positive momentum in the property market was short-lived.
Analysts have suggested that potential measures to stimulate the market could include reducing down-payment requirements, revising home purchase regulations, and implementing strategies to enhance developers' liquidity.
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