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Refinancing nod may tilt toward property firms eyeing end users

Recently, about 14 A-share listed China property developers suspended trading, pending potential announcement of refinancing activities in the A-share market.

This highlights a potential subtle change in government tightening for the property market — in the past, financing activities for A-share and H-share (listed in Hong Kong) developers of all types of products have been restricted. So far, applications for refinancing are more for building social housing and end-user commodity residential properties, and if these refinancing activities are approved, it would reaffirm our positive view on developers targeting end users.

The central government stated that it would like to maintain a stable and healthy property market. It has reiterated the strict implementation of home purchase restrictions and mortgage restrictions to constrain investment and speculation activities, and has requested local governments to implement additional tightening measures if property prices rise faster than GDP or disposable income growth.

Solid stance

This highlights the government’s solid stance on property prices. On the other hand, the potential relaxation of financing on social housing and end-user commodity residential properties should help encourage more construction activities in these two segments, and hence increase supply of these types of properties. The increase in supply should help stabilize property prices and at the same time support the central government’s push for urbanization and agriculture modernization.

However, it should be noted that bodies such as the China Securities Regulatory Commission may or may not have the authority to approve these refinancing applications from property companies.

In addition, all applications for refinancing may not be approved; these will likely be evaluated on a case-by-case basis.

More new types of housing should emerge and show faster growth.

Given the government’s push for urbanization and agriculture modernization, we expect continued structural change in the Chinese property market, and the following types of housing should see faster growth and higher volumes going forward: Social housing nationwide; Shanty town improvements (relocation housing) in tier-1 and big tier-2 cities; Urban-rural coordinated development projects in tier-2, 3, 4 cities; Old-village or old-town redevelopment in tier-1 cities; and End-user commodity residential properties in tier-2, 3, 4 cities.

Tony Tsang and Jason Ching are research analysts of Deutsche Bank. The opinions expressed are their own.



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