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Chinese real estate stocks surged this month. But analyst warns of high expectations vs. 'weak reality'

China's housing prices fell in October due primarily to falling prices in less developed, so-called Tier-3 cities, according to Goldman Sachs analysis of official data.
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BEIJING — China's real estate sector isn't yet poised for a quick recovery, despite a rally this month in stocks of major property developers.

That's because recent support by Beijing don't directly resolve the main problem of falling home sales and prices, analysts say.

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Last week, property developer stocks surged after news the central bank and banking regulator issued measures that encouraged banks to help the real estate industry. It comes alongside other support measures earlier this month.

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Shares of Country Garden, the biggest Chinese developer by sales, have more than doubled in November, and those of Longfor have surged by about 90%. The stocks have already given back some of this month's gains.

Meanwhile, iron ore futures surged by about 16% this month — Morgan Stanley analysts say about 40% of China's steel consumption is used in property construction.

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The situation is one of "strong expectations, but weak reality," and market prices have deviated from the fundamentals, Sheng Mingxing, ferrous metals analyst at Nanhua Research Institute, said in Chinese translated by CNBC.

Sheng said it's important to watch whether apartments can be completed and delivered during the peak construction period of March and April.

This really is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future...
Samuel Hui
Fitch Ratings

The new measures, widely reported in China but not officially released, stipulate loan extensions, call for treating developers the same whether they are state-owned or not and support bond issuance. Neither regulator responded to CNBC's request for comment.

"This really is a temporary relief in terms of the developers having to meet less debt repayment needs in the near future — a temporary liquidity relief rather than a fundamental turnaround," Hong Kong-based analyst Samuel Hui, director, Asia-Pacific corporates, Fitch Ratings, said Wednesday.

"The key is that we still need the fundamental underlying home sales market to improve," he said, noting homebuyer confidence relies on whether developers can finish building and delivering apartments.

Earlier this year, many homebuyers refused to continue paying mortgages on apartments when construction was delayed. Homes in China are typically sold ahead of completion, generating a major source of cash flow for developers.

A drawn-out recovery

A longer-term transformation

Source: https://www.cnbc.com/2022/11/21/chinese-real-estate-stocks-surge-but-analyst-warns-of-weak-reality.html


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