China Property Stocks Surge After New Mortgage and Sales Rules

China's property stocks and real estate ETFs jumped at the open on August 31 after a package of housing reforms released on August 28, according to Jiemian News. I Love My Home (000560.SZ), Worldunion (002285.SZ), Xiangjiang Holdings (600162.SH), Shenzhen Properties A (000011.SZ) and China Communications Construction Development (000736.SZ) all hit limit up early in the session, while Tef Services (300917.SZ) rose by the 20% daily limit. By the midday close, Tef Services was up 10.26%, Shenzhen Properties A gained 10.05%, I Love My Home rose 9.85%, Worldunion added 5.58% and Vanke A (000002.SZ) was up 1.9%. The catalyst was a set of reforms covering home sales, credit rules and industry financing. On August 28, China's central bank and the National Financial Regulatory Administration issued a notice that extended the maximum term for individual home loans from 30 years to 40 years. The notice also said project funds must be managed through a lead bank during development, with one bank assigned to each property project. For development loans arranged by the lead bank alone or as arranger, pre-sale project loans should generally not exceed three years and may not exceed five years, while existing-home sale projects should generally not exceed five years and may not exceed seven years. The reforms also delay the disbursement of mortgages for newly built homes: loans for completed-home sale projects will be released after sales filing, while loans for pre-sale projects will be released only after completion filing, reducing the risk of buyers paying before receiving homes. Later on August 28, China's Ministry of Housing and Urban-Rural Development, the Ministry of Natural Resources and the National Financial Regulatory Administration and other departments released additional policy documents. A notice on commercial housing sales said projects on newly transferred land, and projects on transferred land that have not yet obtained a construction planning permit, should prioritize existing-home sales; if pre-sales are used, each building must have topped out structurally, and buyers' down payments and mortgage funds must be placed in escrow accounts until completion acceptance and supporting utilities are ready for delivery. A trial rule on individual home loans raised the ceiling for the ratio of all debt payments to income from 55% to 60%.