China developers finally get liquidity but where’s the demand

Bloomberg

The long-awaited policy rescue for Chinese developers finally landed this month to ease a severe liquidity crunch. The hurdle of collapsing home demand may prove just as steep a challenge.
Assets linked to the nation’s fragile real-estate sector have rallied over the past two weeks after regulators introduced directives that addressed everything from companies’ liquidity problems to the use of pre-sales funds. While the efforts cheered investors, a report this week showed new home prices fell for a 14th month, while Moody’s investors Service predicted sales would drop as much as 15%.
I don’t think the support measures are adequate as long as home-buyers’ sentiment and contracted sales remain depressed,” said Zerlina Zeng, an analyst at Creditsights Singapore LLC. “Most of the measures are targeted at containing systemic and tail risk rather than bailing out bondholders,” and it will also take time to “see the real transmission of these policies,” she said.
The support measures introduced in the past week spurred record gains in the shares of developers, and helped to drive Hong Kong’s stock gauges into a bull market. Loomis Sayles & Co. described them as a “game changer” that may help restructure an industry beset by defaults and halted construction. A gauge tracking China junk dollar bonds, mostly from property companies, advanced 6.2 cents this week on the dollar to 58.5 cents, rebounding from historic lows.
A Bloomberg index of Chinese builders rallied another 8% this week, following a record 27% surge last week. They gave up some their gains on Friday, dropping 2%. Regulators issued a 16-point plan for boosting the real-estate market on Nov. 11, and the authorities followed that up on Nov. 14 by saying they’re allowing developers to access more money from home pre-sales, the industry’s biggest source of funds.

Slumping Prices
Optimism was tempered a few days later when a government report showed home prices slumped the most in seven years in October. New-home prices in 70 cities slid 0.37% from September, the National Bureau of Statistics said. The existing-home market dropped 0.47%, the most since 2014.