The embattled Hang Seng Mainland Properties index rose for the second consecutive day following the news that China is planning to launch a $44 billion (300 billion yuan) real estate fund.
The fund, announced on Monday, is viewed as China’s first major step to save the beleaguered property sector since last year’s debt troubles. It will help property developers resolve the crisis and restore confidence in the industry.
The Mainland Properties index, which tracks 10 of the country’s biggest Hong Kong-listed real estate companies, rose from 2477.33 on Monday to close at 2694.84 on Tuesday – a jump of 8.78 percent in two sessions.
This came despite the news that two top executives from Evergrande, one of the biggest real estate companies in the country, have resigned following an internal probe that found they misused around $2 billion in loans.
Chief executive Xia Haijun and chief financial officer Pan Darong were involved in diverting 13.4 billion yuan in loans secured by its property services unit to the wider group. Evergrande has more than $300 billion in liabilities and defaulted on its debts late last year.
The People’s Bank of China (PBOC) will support the new fund with 80 billion yuan and China Construction Bank will put in another 50 billion yuan.
As part of the government’s push to boost rental housing, the fund will reportedly bankroll the construction of unfinished home projects, which will be rented to individuals, and if the model works, other banks will follow suit with a target of raising 200 to 300 billion yuan.
The fund, which will support at least a dozen property groups, was approved by regulators last week after property buyers reportedly threatened to stop paying mortgages for projects with stalled construction.
In addition to reviving stalled projects, the fund may be used to buy developers’ bonds, issue them loans or take equity stakes.
Evergrande missed a deadline for repaying its offshore debt after a $2.6 billion deal to sell a majority stake to a rival company fell through in October. Its share price has fallen by more than 75 percent and has been suspended from trading. Shares of other real estate companies that are suspended include Shimao and Sunac.
With almost a quarter of China’s gross domestic product (GDP) coming from the property market and construction, the crisis has hit the world’s second-largest economy hard.
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