BEIJING, March 15 (Reuters) – China’s embattled property sector made new progress in its climb out of a months-long slump as official data for January-February on Wednesday showed much narrower declines in home sales, developer investment and construction starts.
Home sales by floor area in the first two months of 2023 fell 3.6% from a year earlier, according to data from the National Bureau of Statistics (NBS), compared with a 24% decline for the whole of 2022.
The narrower sales decline followed a rise in new home prices in January, the first uptick in a year, as buyers, while still cautious, found solace in a slew of supportive policies, expectations of more stimulus steps and China’s exit from its crushing zero-COVID regime.
Property investment by developers in January-February was down 5.7% on the same period of 2022, improving on December’s 12% annual slump and a 10% decline for the entire 2022.
Analysts expect property sales to be the first indicator to turn positive soon. They see property investment rebounding in the second half of 2023.
“The figures are a good start to the recovery of the property market for 2023, and will further boost confidence,” said Yan Yuejin, analyst at the E-house China Research and Development Institution in Shanghai.
“Property sales figures are expected to turn from negative to positive in the first quarter of the year, the biggest sign that the property market is recovering.”
An index tracking China’s real estate shares (.CSI931775) rose 1.4% on Wednesday, while Hong Kong-listed mainland property developers (.HSMPI) climbed more than 2.5%.
Sentiment for China’s property sector, for years a pillar of growth in the world’s second-biggest economy, has been crushed by multiple crises since mid-2021, including developers’ debt defaults and stalled construction of pre-sold housing projects.
DEMAND BOOST
The lifting of COVID-19 restrictions late in 2022 and release of funds to developers for ensuring delivery of pre-sold projects would boost demand, said analyst Ma Hong at Zhixin Investment Research Institute.
“Investment by developers, a key indicator of market performance, will likely rise in the second half of the year, meaning not only an overall rebound, but also a substantial improvement in the operating conditions of real estate companies,” Ma said.
New construction starts measured by floor area in January-February fell 9.4% from a year earlier versus a 44% plunge seen in December and a 39% tumble for the whole of 2022.
Developers’ access to funds has also improved. Developers raised 15% less funds in the first two months of 2023 than a year earlier. In all of 2022, their fund raising was down 26% on 2021.
“Real estate companies face a peak period of debt repayment in the first half of the year, and will only have the will and ability to expand their investments once sales and financing have grown,” said Zhixin’s Ma.
The NBS did not release land sales data. In 2022, developers bought 53% less land than in 2021. The bureau did not respond to a Reuters request seeking comment on why the data was not released.
Developers were still under great pressure to reduce their stock of unsold homes, since the quantity had risen, said Liu Lijie, analyst at Beike research institute. But the companies’ confidence in getting financing and in buying land had improved marginally, Liu said.
Around half of the 30-odd Chinese developers listed in Hong Kong have defaulted on or delayed bond payments.
At the beginning of the annual meeting of China’s parliament this month, the government made guarding against risks to top property developers one of its top priorities this year, but added that it would prevent disorderly expansion by developers.
(This story has been corrected to say 26% fall in 2022, not in the same period last year, in paragraph 12)
Reporting by Liangping Gao, Ella Cao and Ryan Woo; Editing by Sonali Paul and Bradley Perrett
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BEIJING, March 15 (Reuters) – China’s retail sales in the first two months of 2023 swung back to growth, but factory activity expanded slightly slower than expected, suggesting the bruised economy still needed time to fully emerge from pandemic damage.
Property investment in the January-February period fell again as home buyers and developers remained cautious despite a slew of supportive government policies.
Industrial output in the January-February period was 2.4% higher than a year earlier, data by the National Bureau of Statistics (NBS) showed on Wednesday, slightly missing expectations for a 2.6% gain in a Reuters poll. The reading accelerated from a 1.3% annual rise in December.
Retail sales in the first two months jumped 3.5% from a year before, reversing a 1.8% annual fall seen in December. The result was in line with analysts’ expectation and with hopes for an economic revival led by consumption as flagging global demand weakens Chinese exports.
The mixed data portrayed an uneven recovery in economic activity following China’s abrupt abandonment late last year of its three-year-long campaign to control COVID-19.
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It pointed to “a steady rather than accelerating momentum”, said Zhou Hao, chief economist at Guotai Junan International. It indicated that strong policy support was needed to unleash the growth potential, he said.
Fixed asset investment in the first two months was 5.5% higher than a year earlier, compared with expectations for a 4.4% rise. Government support appeared to have helped, said Zhou.
For all of 2022, fixed asset investment was up 5.1% on 2021.
Within January-February fixed-asset investment, infrastructure investment surged 9.0% from a year before.
However, property investment in the two months was still down 5.7% on the same period of 2022, after showing an annual fall of 12.2% in December.
LIQUIDITY INJECTIONS
The NBS publishes combined January and February data to smooth out distortions caused by the Lunar New Year holiday, which fell in January this year but was in February in 2022.
The central bank ramped up liquidity injections on Wednesday when rolling over maturing medium-term policy loans for a fourth month in a row. It also kept its policy interest rate unchanged. Both decisions matched market expectations.
China has set a modest annual growth target of around 5% this year after significantly missing its target for 2022 and recording one of its worst showings in nearly half a century.
Achieving the 2023 target would not be an easy task and would require more effort, new Premier Li Qiang said on Monday.
The government prioritised economic growth and employment in a work report delivered to the annual meeting of parliament, which wrapped up on Monday. Authorities set a goal of creating around 12 million urban jobs this year, up from last year’s target of at least 11 million, and warned that risks remained in the real estate sector.
In the first two months, the nationwide survey-based urban jobless rate climbed to 5.6% from 5.5% in December.
Employment was basically stable, and seasonal factors had caused the rise in the jobless rate for February, NBS spokesman Fu Linghui told reporters.
Additional reporting by Qiaoyi Li; Editing by Bradley Perrett
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HONG KONG, March 12 (Reuters) – China stock investors, already disillusioned by Beijing’s lower-than-expected economic growth target for the year, will be further disheartened by the shock collapse of U.S. lender SVB Financial Group, market participants said.
China’s CSI300 Index (.CSI300) dropped 4% last week, while Hong Kong’s Hang Seng (.HSI) tumbled 6%, as China’s moderate GDP growth target of around 5% for 2023 – set during the annual session of the rubber-stamp parliament – dashed hopes for a big stimulus.
The market mood could be damped further following Friday’s sudden collapse of start-up focused lender SVB (SIVB.O), which stirred heated discussion over the weekend in China about its fallout.
“The SVB failure is a barometer of macro risks … reflecting how asset prices are being impacted by central bank rate hikes,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, predicting tougher times for highly-leveraged firms with illiquid assets.
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Although the event will unlikely trigger another financial crisis, it could have a negative psychological impact on China markets, he said.
SVB’s Chinese joint venture with Shanghai Pudong Development Bank (600000.SS) said on Saturday that it has a sound corporate structure and an independently operated balance sheet, in an apparent effort to pacify local clients.
But many Chinese tech start-ups, especially those with dollar funding, have opened U.S. accounts at SVB. At least one WeChat group with several hundred members has been formed by anxious Chinese clients of SVB seeking to safeguard their interest.
Lower risk appetite could mute any excitement from an expansion of the China-Hong Kong Stock Connect on Monday. More than 1,000 China-listed A-shares, and nearly 200 Hong Kong-traded stocks will be added to the cross-border investment scheme.
REMAIN VOLATILE
Li Bei, fund manager at Shanghai-based hedge fund house Banxia, said she has slashed stock holdings, and will “maintain a relatively low exposure”, citing a lack of good opportunities.
Prudent economic stimulus for 2023 and a relatively tight credit environment means “it’s hard for stocks to further go up from the current level and the market will remain volatile,” Banxia wrote in a letter to investors last week.
China kept its central bank governor and finance minister in their posts on Sunday, toward the end of the week-long session of the National People’s Congress (NPC), where Xi Jinping began his third five-year term as Chinese president. Li Qiang, a longtime Xi confidant, was promoted to premier to steer the economy, which grew just 3% last year.
Derek Lin, a portfolio manager with Boston-based Columbia Threadneedle Investment, said the government “does need a good year” but isn’t rushing to launch big stimulus, so “the market is trying to get excited, but there is some hesitancy.”
Stanley Tao, founder and CIO at Golden Nest Capital Management said he doesn’t expect a broad-based bull market in China this year as a soft property market will remain a drag on the economy. He is cautious about tech stocks that could be impacted by US-China frictions.
Still, domestic A-shares will likely outperform offshore China stocks, which are more vulnerable to potential spillover from the SVB collapse, analysts say.
Chaoping Zhu, global market strategist at JPMorgan Asset Management, said the SVB fiasco reflects tighter financing conditions for tech firms during the U.S. rate hike cycle.
“The concern is that we could be just seeing the tip of the iceberg,” Zhu said during a live broadcast on Saturday.
(This story has been refiled to fix the dateline)
Additional reporting by Samuel Shen and Georgina Lee; Editing by Raju Gopalakrishnan
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BENGALURU, March 10 (Reuters) – Home prices in several major markets will extend their decline this year, according to a global Reuters poll of property analysts who either predicted slightly steeper drops or kept their view steady from a survey three months ago.
Even greater drops may be in the offing, since the forecasts were collected before the Federal Reserve this week indicated that U.S. interest rates would likely climb higher and stay elevated for longer than previously thought.
Rising mortgage rates as central banks lift benchmark borrowing costs to curb inflation, and a historic house price boom during the COVID pandemic have pushed home ownership closer to impossible for many prospective first-time buyers.
That in turn has pushed up rents sharply in most markets, leaving the overall cost of housing much more expensive in just the past few years.
Predicted drops in house prices in the U.S., Canada, Britain, Germany, Australia and New Zealand will come off price surges of as much as 50% since the start of the pandemic in 2020.
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Indeed, 50 of the 96 analysts in the polls, taken from Feb. 15 to March 8, said affordability would worsen in the coming year. They included nine who said it would do so significantly.
“Those markets that saw the strongest growth during the pandemic, so places like New Zealand, Canada, the Nordic markets, are probably likely to be most heavily affected,” said Kate Everett-Allen, head of international global residential research at Knight Frank.
House prices in Canada and New Zealand, which began to fall last year, were forecast to register a peak-to-trough drop of at least 20%, the poll showed.
Both countries have a considerably high household debt-to-income ratios.
Double-digit falls from recent peaks were also predicted for Australia (16.0%), Germany (11.5%) and the U.S. (10.0%). British home prices were expected to fall 8.0%.
Among the most commonly cited reasons for house prices to remain elevated were crimped supply, made worse during the pandemic, when construction activity came to a near-halt, and ever-rising demand.
“A slowdown in new housing construction and (a) drop in building permits are expected to deepen housing shortages in many countries across the world, with population growth continuing to outpace growth in new housing supply,” said analysts at JLL.
“A divergence in construction output is anticipated in 2023 with most markets seeing a fall in supply.”
However, activity in the crisis-hit China property market, which has seen mounting debt defaults over the past year, was forecast to recover this year as stimulus policies and the scrapping of COVID-19 curbs improve sentiment.
While India’s housing market will remain resilient despite rising interest rates, home prices in Dubai were also predicted to rise steadily.
(For other stories from the Reuters quarterly housing market polls:)
Reporting by Hari Kishan; Other reporting and polling by Jonathan Cable, Indradip Ghosh, Sarupya Ganguly, Prerana Bhat, Vijayalakshmi Srinivasan, Milounee Purohit, Devayani Sathyan, Vivek Mishra, Anant Chandak and Susobhan Sarkar; Editing by Ross Finley and Bradley Perrett
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HONG KONG, March 7 (Reuters) – Hong Kong, one of the world’s top luxury shopping destinations, is losing its lustre as high-end retail properties go vacant and famous foreign brands reduce exposure to the city in favour of opening new outlets in mainland China.
Glitzy Hong Kong shopping streets once packed with luxury stores that attracted 56 million visitors in pre-pandemic 2019 now have about half of their shop units sitting vacant, according to property management companies.
Rents in Tsim Sha Tsui are down 41% from pre-pandemic levels, according to property firm Cushman & Wakefield (CWK.N), and last year the retail district was displaced as the world’s most expensive shopping real estate by New York’s Fifth Avenue.
Canton Road, the most famous shopping street in Tsim Sha Tsui, has a vacancy rate of about 53%, according to global property company Savills (SVS.L).
“Most luxury retailers don’t think Hong Kong will return to the dizzy levels of 2014 when the market here peaked,” said Simon Smith, Savills’ senior director of research and consultancy in Hong Kong.
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“If you walk around the major shopping areas you won’t see the queues outside luxury boutiques or if you do they are very short,” Smith said.
In place of stores shut by Tiffany, Valentino, Burberry (BRBY.L) and other big brands over the last three years, including in Tsim Sha Tsui, Central and Causeway Bay shopping districts, pharmacies and sports apparel outlets for brands like Adidas (ADSGn.DE) and Sweaty Betty have moved in.
Luxury and big brand retail companies mentioned in the story did not respond to requests for comment.
The store closures came after pro-democracy protests and the crackdown that followed pushed sales into a slump which worsened under nearly three years of stringent COVID rules.
Over that period, Hong Kong suffered around a 30% plunge in overall retail sales compared to 2018 levels, largely due to a tumble in mainland visitors because of travel restrictions. Tourists from greater China are the main driver of Hong Kong’s branded retail and luxury goods market.
Hong Kong retail data doesn’t break out luxury goods separately but the sector was hit hard as China accounted for almost 80% of inbound tourists in 2019. Jewellery, watches, clocks and valuable gifts sales in 2022 at HK$38.8 billion ($4.9 billion), for instance, were less than half their 2018 value.
And while inbound travellers in January tripled from December as COVID restrictions were lifted and travel resumed, arrivals were still only about 10% of 2019 levels.
Morgan Stanley (MS.N) forecast Hong Kong visitor numbers this year will reach just 70% of 2018 arrivals. It estimates retail sales will grow 15%, holding at around 80% of retail trade from the pre-COVID year.
MANY MORE ALTERNATIVES
Many luxury brands expanded in mainland China during the pandemic, opening stores in far-flung locations to reach consumers unable to travel. Tourist destinations such as resort island Hainan and Macau also have become popular alternatives as China sought to develop multiple duty and tax free destinations.
Visitors to Macau in January more than tripled from December, hitting 40% of the level of January 2019. Hainan, which reported visitor growth even during the pandemic, saw arrivals rise 11% between Jan. 8 and Feb. 15 compared to the same period a year earlier, according to the government.
“(Hong Kong) will never be back to the level it was, like a decade ago, when it was the only, I would say, duty free location where Chinese would go,” L’Oreal (OREP.PA) CEO Nicolas Hieronimus told Reuters.
“Now they have many more options.”
Duty free malls in Hainan, where tourists are the main customers, reported an 84% jump in sales in 2021, the latest data from consultancy Bain & Co showed, outpacing the mainland’s average growth rate of 36% in luxury sales for that year.
Hainan also accounted for 13% of China’s domestic luxury spend in 2021 versus 6% pre-pandemic, and tax regulations are set to ease further, allowing more duty-free stores to open.
That helped China’s domestic luxury sales double to 471 billion yuan ($68.8 billion) in 2021 from 2019, according to Bain. That outstripped total Hong Kong retail sales from a peak hit in 2013 at HK$494.5 billion ($63.0 billion), according to the city’s statistics department.
This imbalance in favour of increasing sales in China had big luxury brands opening stores across the country over the last few years, according to filings and company websites.
Hermes (HRMS.PA), with 27 stores in the mainland, opened a new, enlarged store in Nanjing in January, relocating to upscale mall Deji Plaza. It first opened a store in 2010 in the eastern city.
Gucci owner Kering (PRTP.PA) opened nine boutiques in Greater China in 2021; upscale men’s suit maker Brioni opened stores in Chengdu, Wuhan and Shenzhen; jeweller Boucheron opened two mainland stores.
Saint Laurent, another Kering brand, opened its first flagship stores in Shanghai and Beijing in 2019. The group’s jeweller Qeelin has also been expanding in the mainland and opened its largest flagship store in China in Shanghai in 2021.
Despite the increasing investment in the mainland, some are still hopeful about the long-term outlook for Hong Kong as global economies and holiday travel recover.
“Macau is another tax free destination and Hainan is duty free. Yet, you don’t find the breadth and depth of mono-brand stores in Hainan that you can find in Hong Kong,” Luca Solca, managing director for luxury goods at investment management firm Sanford C. Bernstein, told Reuters.
“Hong Kong remains very attractive for Chinese consumers.”
($1 = 6.8510 yuan)
($1 = 7.8498 Hong Kong dollars)
Reporting by Farah Master, Jessie Pang, Anne Marie Roantree, Angel Woo and Donny Kwok in Hong Kong, Sophie Yu in Beijing, and Mimosa Spencer in Paris; Writing by Miyoung Kim; Editing by Tom Hogue
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BEIJING, March 5 (Reuters) – Warning that risks remain in the property market, China’s government said in a report released at parliament’s annual opening on Sunday that it would promote the sector’s stable development and prevent disorderly expansion by developers.
Premier Li Keqiang made guarding against risks to top property developers one of the government’s priorities this year, amid still cautious buyer sentiment, following through on the work done at a key economic meeting in December.
“There are more potential risks in the real estate market and some small and medium-sized financial institutions are exposed to risks,” Li said in the government’s work report for 2023.
Since mid-2021, the property sector has grappled with a liquidity crisis, with many developers defaulting on, or delaying, debt payments as they struggle to sell apartments and raise funds. Around half of the 30-odd Chinese developers listed in Hong Kong have defaulted on or delayed bond payments.
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“There are many risks in real estate for homebuyers and property developers, such as buyers’ threat of stopping mortgage repayments, failure to deliver pre-sold homes and default on debt by developers, which indicates a lack of consumption power and confidence,” said Yan Yujin, analyst at E-house China Research and Development Institution.
“Only when consumer demand for housing is boosted can other real estate problems, including the problem of financial risks of leading housing companies, be truly resolved.”
Premier Li said the government would resolve housing issues for young people and support the needs of homebuyers.
China also insists that “housing is for living, not for speculation,” according to a separate report by the state economic planner, though Li did not mention it in the government 2023 work outlook.
China will ensure developers deliver pre-sold properties and expand the supply of affordable rental housing, the planner said.
In 2022, cash-strapped real estate firms stalled construction of many presold properties, triggering hundreds of buyers across the country to threaten to stop making mortgage payments, in a rare show of public discontent.
The property market showed some signs of recovery in recent weeks, as home prices rose in January for the first time in a year, helped by aggressive support given by the government late last year and the removal of COVID controls.
Buyers remain cautious, however, hampering chances for a sustained rebound.
An index tracking China’s real estate shares (.CSI931775) has risen 2.5% so far this year, lagging the 7% gain in the benchmark CSI300 Index (.CSI300), while an index for Hong Kong-listed mainland property developers (.HSMPI) has lost roughly 3%, reflecting the market’s similarly cautious outlook.
Reporting by Liangping Gao, Ryan Woo and Samuel Shen; Editing by Simon Cameron-Moore
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HONG KONG/SYDNEY, March 2 (Reuters) – Major property developer China Vanke Ltd said on Thursday it had raised HK$3.92 billion ($499 million) in a share placement in Hong Kong, in the first test of investor appetite for a mainland developer share sale in 2023.
State-backed Vanke said in a filing that it sold 300 million shares at HK$13.05 per share, versus their offer price range of HK$12.93 to HK$13.20 apiece, according to the term sheets of the deal launched on Wednesday and seen by Reuters.
The pricing was at a 6.12% discount to Vanke’s Wednesday close of HK$13.90.
Vanke shares fell 4.9% to $13.22 on Thursday, versus a 0.1% decline in the Hang Seng Mainland Properties Index (.HSMPI).
The Shenzhen-based developer said it intended to use 60% of the proceeds to repay outstanding overseas debt financing, and the rest to replenish working capital.
It would not use proceeds for new domestic residential developments, it said.
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Vanke has $971 million and $650 million dollar notes due in April and May, respectively, according to Refinitiv data.
A person with direct knowledge told Reuters nearly 100 institutional investors participated in the share placement, including from the U.S. and Europe. The person added sizable orders were from sovereign funds and long-only funds, without giving details.
Vanke declined to comment.
China’s property sector has since mid-2021 been grappling with a liquidity crisis, with many developers defaulting on, or delaying, debt payments as they struggle to sell apartments and raise funds.
Vanke, seen by the market as a good quality developer, is among those with the largest onshore credit lines in place.
It received approval to issue about 30 billion yuan ($4.35 billion) notes recently and is planning to sell up to 15 billion yuan new shares in Shenzhen, where it is dual-listed (000002.SZ).
JP Morgan said Vanke’s placement, while not a “total surprise”, came earlier than expected because it is in a blackout period prior to earnings announcement.
“We believe Vanke might have wanted to take advantage of the current window to place H-shares first, especially before a potential wave of placements in 2Q23,” the investment bank said, adding it expected more equity-raising in the sector.
JP Morgan noted Vanke’s placement price was one of the narrowest among recent sales, where the average discount was 12%-13%, and that it did not think the placement hinted Vanke was in distress as its financing activities have been smooth.
Vanke’s share sale represented 13.6% of its enlarged H shares and 2.51% of its enlarged total share capital, including both shares issued in Hong Kong and Shenzhen.
CLSA and Citi are the placing agents of the share sale.
($1 = 7.8490 Hong Kong dollars)
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Reporting by Scott Murdoch and Clare Jim; Editing by Muralikumar Anantharaman and Himani Sarkar
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BEIJING, Feb 23 (Reuters) – The number of Chinese households that decided against buying a home soared in the fourth quarter of 2022, a private survey showed, as COVID infections and lockdowns sapped sentiment, while property foreclosures soared as the economy slowed.
But more households were considering buying a home or investing in other assets in the coming three months, according to the survey by a research institute and think tank under Ant Group and the Southwestern University of Finance and Economics released on Wednesday.
Stabilising the crisis-hit property sector will be a key challenge for policymakers this year as they try to kick-start an economic recovery. Much hinges on how quickly people will start spending again after the government abruptly dismantled its tough COVID restrictions in December.
The number of families opting to stay on the sidelines for property in the last quarter rose to 27.2% of respondents from 20.1% in July-October, the survey showed.
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However, it also found 16.6% of Chinese families had plans to buy a home in the coming three months, up from 7.0% in the July-October quarter.
Respondents’ willingness to allocate money to domestic stocks, funds, and overseas asset classes also increased, the survey showed.
The quarterly survey of over 34,000 households focuses on changes in Chinese household wealth.
China’s real estate sector, once a key driver of the world’s second-largest economy, fell into a deep slump in 2022 as debt-ridden developers failed to finish stalled projects and some buyers boycotted mortgage payments. As a result, property investment and sales fell sharply, weighing on home prices.
Foreclosed properties reached 606,000 units last year, up 35.7% from 2021, with the number of such properties finding buyers at auctions slumping 14.9% on year, according to calculations from a separate survey by China Index Academy, one of the country’s largest independent real estate research firms.
Cities with high numbers of foreclosures were mostly in central and western China, as well as the prosperous Yangtze River Delta and Pearl River Delta regions, according to the property research firm.
A tentative revival was seen in the property sector in January, with home prices rising for the first time in a year, boosted by the government’ aggressive support measures late last year, lower mortgage rates and the u-turn on the “zero COVID” containment policy.
But analysts expect a sustainable recovery in the sector will only kick in towards the second half of this year.
In the poll by Ant Group’s institutions, the overall debt of Chinese families and all types of debt increased significantly in the fourth quarter and were at higher levels than in the year-earlier period.
The survey also showed demand for consumer loans increased in the fourth quarter, although low interest rates on consumer loans have led many home buyers to use the funds to pay off their existing mortgages in advance.
Reporting by Liangping Gao and Ryan Woo; Editing by Kim Coghill
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SINGAPORE, Feb 21 (Reuters) – HSBC Holdings PLC (HSBA.L) Group CEO Noel Quinn indicated on Tuesday that China’s commercial property sector was on the mend, after the bank booked higher-than-expected charges in the fourth quarter linked to its exposure to developers.
“The sentiment in the fourth quarter was more negative than the sentiment that emerged in January,” Quinn told Reuters in an interview, adding there were positive developments both on the demand side and the supply side linked to significant policy measures.
His comments came after Europe’s biggest bank reported a 92% surge in quarterly profit and pledged more regular dividends and share buybacks.
Still, HSBC said expected credit losses nearly trebled to $1.4 billion in the fourth quarter, impacted by charges related to its $16.8 billion exposure to China’s commercial real estate sector and companies in Britain. This was higher than market expectations of $1.05 billion.
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China’s property sector, which accounts for a quarter of the economy, was badly hit last year as cash-squeezed developers were unable to finish apartment construction, prompting a mortgage boycott by some buyers.
Analysts expect rate cuts and other measures announced by China to kick start a recovery in the sector towards the second half of this year, while data shows the market is stabilising.
“On the demand side, the re-opening of China post COVID is going to create increased demand over time for commercial real estate. On the supply side, there were some big policy measures announced in early January to provide additional liquidity to the commercial real estate sector,” Quinn said.
“So encouraging signs in early January. We think that will be positive for the sector, but we thought it wise to take some additional provisions at the end of December. We have a more positive outlook now,” he said.
Last week, Standard Chartered (STAN.L) flagged a challenging outlook for China’s real estate sector and said it expected a “protracted recovery.” It said it had minimal exposure to mortgages on buildings under construction.
StanChart’s statutory credit impairment charges more than doubled to $227 million in the fourth quarter from a year earlier and the charges includes $130 million for exposure to China real estate, among others.
Reporting by Anshuman Daga and Lawrence White, Editing by Louise Heavens
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HONG KONG, Feb 21 (Reuters) – Warburg Pincus is raising 3 billion yuan ($439 million) in its maiden yuan-denominated fund, two people with knowledge of the matter said, joining a growing list of private equity investors eyeing local currency investment opportunities in China.
China’s regulatory crackdown on private enterprises including in the tech sector, strict COVID-19 lockdowns, and Sino-U.S. tensions have made many U.S. investors more cautious about deploying fresh capital in China, several investors and lawyers told Reuters.
Warburg has approached a number of Chinese investors including local government-backed entities and state-backed financial institutions for the new yuan fund, the people with knowledge of the matter said.
The U.S. private equity (PE) firm plans to primarily focus on the healthcare and industrial technology sectors in China with the yuan fund, one of the people said.
Both people declined to be identified because the information is confidential.
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Warburg declined to comment.
With yuan-denominated funds, investing in and exiting a local portfolio would be easier in the current macroeconomic environment, some investors said.
“There is uncertainty in whether Chinese companies can go public in the U.S., due to volatilities in U.S. dollar market,” said Mingchen Xia, managing director and co-head of Asia investments at asset management and private investment firm Hamilton Lane.
“RMB (yuan) funds are relatively independent and self-sustainable,” he said. “The bigger reason is geopolitics. Chinese companies welcome RMB funds to invest, especially in sectors such as semiconductor, high technology and national security.”
Hamilton Lane opened its Shanghai office last week after raising a yuan-denominated secondary fund for private markets through China’s Qualified Foreign Limited Partner (QFLP) structure.
The QFLP structure allows foreign investors to convert U.S. dollars to yuan for investments in China.
Fundraising in yuan, however, has its own challenges because it can be costly and require a different set of skills from fund managers who are more used to dealing with U.S. dollar investors, lawyers and investors said.
“Unless you have a state-backed partner fund or a specific strategic direction, it would still be difficult to raise funds from the market,” said Hong Zhang, a Shanghai-based partner with law firm Baker McKenzie Fenxun.
Sensitive sectors will remain closed to global private equity groups even if they raise yuan funds, she added.
Other global private equity investors raising first-time yuan funds include luxury group LVMH-backed (LVMH.PA) L Catterton, which said in October it had reached first close of its debut yuan fund targeting 2 billion yuan, focusing on the consumer sector.
Private equity funds typically begin investing after their first close, when they have received an initial round of commitments from investors.
Emerging markets-focused Affirma Capital is also targeting a 2 billion yuan raising in its debut fund and reached first close at 1.5 billion yuan by end-2022, a person close to the situation said. The firm declined to comment.
Reporting by Julie Zhu and Kane Wu in Hong Kong; additional reporting by Roxanne Liu in Beijing and Yantoultra Ngui in Singapore; Editing by Sumeet Chatterjee and Jamie Freed
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