Over 90% of China Developers Expect Boost From Rate Cuts

It’s only been a few days since China cut interest rates to revive a slowing economy and boost property sales, but the monetary measure already seems to be raising confidence among the country’s listed real estate developers.

A survey of 12 publicly listed developers by Reuters found that, after the central bank cut interest rates by a quarter of a percentage point on Monday, 11 of the home builders believed that the measure would boost housing sales.

The property companies also indicated that the rate cut would speed up investment in the real estate sector, which has dropped rapidly in response to a more than year-long industry slump.

Rate Cuts Already Boosting Developer Shares

This week’s rate cut by the People’s Bank of China (PBOC) brought the benchmark one-year loan rate down by 0.25 percent to 5.1 percent, and the one-year deposit rate down by the same measure to 2.25 percent. The rate cut was the third such maneuver since November last year.

The interest rate reductions, combined with other monetary measures and administrative policy changes such as reductions in down-payment levels, have helped to fuel a surge in share prices for the mainland’s listed developers. The Hang Seng Property Index, which includes many mainland developers, is up more than 20 percent this year, and the Shanghai Property Subindex has climbed more than 42 percent since the end of 2014, although this comes amidst an overall stock rally.

The positive outlook by equity investors seems to be shared by the developers, with the Reuters poll finding that eight out 12 companies surveyed were optimistic that the rate cut would spark home sales, with another two declaring that they were very optimistic, and an eleventh calling itself cautiously optimistic. Among the developers surveyed, only Country Garden, Yuzhou Properties and China Resources Land agreed to be named.

Many analysts expect several further rounds of rate cuts this year, as the central bank struggles to revive a real estate industry that accounts for an estimated 15 percent of China’s GDP.

Investment Expected to Rebound

The potential for cheaper financing also has developers predicting a return to investment in new projects, after many industry players have stayed away from government land sales in recent months.

According to Reuters, nine of the twelve developers were confident that the latest rate cut would spur new investment. The representatives of the remaining three companies said that investment decisions depended on a rebound in sales.

Year on year growth in investment in property projects in China fell to just 8.5 percent for the period from January to March of this year, reported the National Bureau of Statistics in its most recent survey of the real estate market. The rate of investment growth was down sharply from the 10.4 percent recorded in January to February of this year, and is just a fraction of the nearly 20 percent annual growth that the industry enjoyed during the first quarter of 2014.

While sales of new homes have begun to show signs of reviving in March and April, overall home sales for the first quarter were still down by 9.1 percent compared to the same period of 2014, according to the Bureau.