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China policy measures, domestic price hikes improve sentiment

* Chinese authorities have taken steps in the last few weeks to support the country’s property and real estate sector. The measures include a reduction in mortgage rates for existing customers and lower down-payment requirements for new and secondtime home buyers.

* Under the new stimulus measures, existing borrowers can renegotiate interest rates on mortgages for their first homes; the down-payment requirements for first-time homebuyers will be reduced to no lower than 20%; and the down-payment requirements for a second home will be cut to no lower than 30%.

* In another development, Country Garden, one of the largest real estate developers in China, entered into a deal with creditors to extend its onshore debt payments worth CNY3.9b (USD540m). The extension implies that the developer can repay its debt in installments over three years instead of the Sept’23 deadline. This deal is expected to bring some relief to the real estate sector.

* While Chinese authorities have stepped up efforts to support the property sector, the outcome remains to be seen.

* However, in the domestic market, demand remains robust, and steel mills have undertaken multiple price hikes since Aug’23. Steel prices, which had been under pressure due to weak global prices and monsoon impacts, seem to have bottomed out and are gradually increasing. ? On the cost side, while iron ore prices have been range-bound, coking coal prices have increased by ~10% MoM to over USD280/t.

Chinese authorities reduce mortgage rates and ease down-payment criteria to support the real estate sector

* China’s real estate and construction sector contributes substantially to its GDP and in the wake of a deepening property market crisis, Chinese authorities have stepped in to support the ailing sector.

* The minimum down-payment requirement for mortgages is proposed to be cut to 20% for first-time buyers and 30% for second-time buyers (it was 10% higher in most cities earlier). The regulators have also encouraged banks to offer lower mortgage rates. Under the new measures, borrowers can renegotiate interest rates on mortgages for their first homes from 25th Sep’23.

* Interest rates on new loans will be determined through negotiations between the borrower and the bank but cannot be lower than the minimum set by the local authorities for the specific city.

* However, unlike the past when the property sector came to rescue the economy, we believe this stimulus will have limited upside in the long run due to muted demand from first-time buyers, no increase in income, record youth unemployment and an aging population.

China’s largest real estate developer warns of default; restructures debt

Country Garden recently became the latest real estate giant in China to report a record loss of USD6.7b, leading to concerns of a potential default. The company also missed its debt obligations on CNY-denominated bonds. However, Country Garden avoided default by entering into a deal with creditors to extend the payments for the private bond and would now be paying its USD540m onshore bond in installments over three years. This provided some relief as Country Garden is a very large player

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