(Bloomberg) -- China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound in the ailing sector, according to people familiar with the matter.
Regulators are considering reducing the down payment in some non-core neighborhoods of major cities, lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council, the people said, asking not to be named because the matter is private.
The government may also refine and extend some policies laid out in the sweeping 16-point rescue package it rolled out last year, the people said. The plans have yet to be finalized and may be subject to change, the people added. China’s housing ministry didn’t immediately respond to a request for comment.
News of the potential measures buoyed hopes that Beijing will roll out policy stimulus to reinvigorate a faltering economic recovery, with the yuan jumping and commodities including copper and iron ore extending gains. US-listed Chinese stocks climbed, as did shares of European companies with strong ties to China, such as luxury goods makers and the mining sector.
China’s property sector has avoided a collapse but remains a key drag on the world’s second-largest economy. Signs of renewed weakness are emerging in the residential market, with a rebound in home sales slowing in May to just 6.7% from more than 29% in the previous two months.
“The sector is still sick,” Bloomberg Economics and Intelligence analysts including Chang Shu and Kristy Hung wrote in a May note.
China’s economic recovery lost momentum in April after an initial burst of consumer activity. Economists surveyed by Bloomberg now expect gross domestic product to expand 5.5% this year from a year ago, edging down from a prior estimate of 5.6%. Home price growth also slowed in April.
A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include:
- Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
- A nationwide cap on real estate commissions to boost demand
- Allowing private equity funds to raise money for residential property developments
- Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
- A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers
Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.
Separately, China is set to extend incentives for electric-vehicle purchases as it views the foundation of the economic recovery as not yet solid, the nation’s state radio reported late Friday, citing a State Council meeting chaired by Premier Li Qiang. People familiar with the matter said earlier on Friday an extension was being considered for some clean cars for another four years.
The yuan strengthened more than 0.5% against the dollar onshore for the largest advance in more than two months, while dollar bonds issued by higher-rated Chinese property developers rose. Alibaba Group Holding Ltd. and Baidu Inc. gained more than 2% each in early US trading. KE Holdings Inc., a platform that facilitates housing transactions, rallied as much as 8%.
The real estate industry’s downturn had been a major factor weighing on Chinese markets this year, sending a key gauge of Hong Kong-listed shares into a bear market and contributing to pockets of credit stress.
Billionaire Wang Jianlin’s Dalian Wanda Group Co. has been on an asset-selling spree to generate more liquidity, while seeking a loan relief plan that may allow it to extend principal repayments for some borrowings from Chinese banks, people familiar with the matter said in May.
China Evergrande Group said this week it faces more than a thousand lawsuits involving 350 billion yuan. The embattled property developer has yet to win enough support from creditors for its overseas debt restructuring plan.
--With assistance from Emma Dong, Fran Wang, Tania Chen and Michael J. Moore.
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