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Kaisa is the first Chinese company to default on offshore debt interest payments after failing to pay almost US$52 million over the weekend. Photo: Reuters

New | Policy support fuels hopes of China property market recovery

Mainland property market shrugs off Kaisa debt default, encouraged by strong series of measures expected to bring back homebuyers

Accelerating policy support has fuelled expectations of an immediate home price recovery in China, overturning fears of widespread defaults in the wake of developer Kaisa's debt woes.

The People's Bank of China cut banks' required reserve ratios by 100 basis points over the weekend to pump liquidity into the country's slowing economy. That came just 20 days after the central bank lowered down-payment requirements and the finance ministry cut transaction taxes to improve housing affordability and stimulate property demand.

"The recent policy support is stronger than expected and will likely overshadow Kaisa's impact on the property market," said Franco Leung, a senior property analyst at Moody's. Shenzhen-based Kaisa confirmed on Monday night it had become the first mainland Chinese firm to default on offshore debt interest payments after failing to pay close to US$52 million over the weekend.

Nicole Wong, the head of property research at brokerage CLSA in Hong Kong, agreed that strong policies "will encourage more homebuyers back into the market as asset prices are expected to increase".

She projected that home prices would surge more than 10 per cent this year in China's first-tier cities - Beijing, Shenzhen, Shanghai and Guangzhou - due to short supply as demand would revive while developers had been slowing construction since the industry entered a downturn early last year.

Wong said when investors took profits from a recent stock market rally, some of them would spend money to upgrade to bigger and better homes due to limited investment options onshore.

Latest official data showed new home prices picked up in 12 of the 70 cities monitored by the National Bureau of Statistics last month, compared with only two in February.

In year-on-year terms, however, all cities were still suffering falls.

"Aggregate prices remain under downward pressure, but the signs of healing broadened out to a small sample of non-Tier1 cities in March, which is a further indication that the overall market has left the very worst behind it," Westpac said in a note.

Private data from consultancy China Real Estate Index System showed property sales in 50 cities grew 5.9 per cent year on year last month, up from an annual rise of 0.7 per cent in the first two months of the year. Improving sales reduced destocking periods in 20 of the cities on its radar to 14 months by the end of March, down from a peak of 18.2 months in September.

The Chinese authorities ended a five-year tightening stance on the property sector at the end of September and followed with an interest rate cut in November, the first in more than two years. The central bank then cut banks' required reserves in February.

Meanwhile, local governments have been outlining extra supportive measures, including cash subsidies in Shaoxing and Wenzhou in Zhejiang province.

This article appeared in the South China Morning Post print edition as: Home price hopes rise on policy support
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