China’s ailing real estate market may soon be recovering.

As bond prices and trading volume have increased over the past week, investors are feeling more confident in this sector. It is partially due to the government’s pledge to support the sector as well as some loosening in policies.

Analysts warn that China’s property market is in decline and could be “changed forever” after the recent sector shakeup.

S&P Global Ratings said in an early April report that China’s policy crackdown on its residential housing market has “bottomed,” but that it will take several quarters for markets to feel the effects of the regulatory easing.

“When China’s residential market emerges from this correction, it may be changed forever,” S&P said. We expect fewer developers to be able use the high-leverage, fast-churn strategy which brought them past success.

According to recent reports, banks and cities are open to supporting real estate after the plunge in home sales over the past few months.

Due to weakening of market demand, more than 100 banks across China have cut mortgage rates an average of 20-60 basis points since March. Zou Lan, the director of People’s Bank of China’s finance markets department, said Thursday.

He pointed out how Covid affected incomes and ability to repay mortgages on-time.

“The government’s position [is]In a telephone interview, Gary Ng, Asia-Pacific economist for Natixis told CNBC that he was trying to avoid the spread of contagion.

Moody’s estimates that any change in China’s realty industry could have significant consequences for the country’s economy. Property and its related sectors make up roughly 25% of China’s GDP. These are the latest wave of Covid restrictionsGrowth that had been already slowing has seen an increase in pressure.

Ng said that the measures might have been too restrictive. Ng explained that we now see the fine tuning of this policy. The worst is now over for developers that are in compliance with current regulations.

In August 2020 the government introduced “three red lines”, a policy that aimed to curb excessive debt-fueled growth. This policy sets a ceiling on the amount of debt a company can have in relation to its cash flows, capital and assets.

Many developers have reduced their debt accordingly. However, this policy led to banks becoming less inclined to lend to the sector.

This is the backdrop against which Evergrande, the most indebted global developer, defaulted for the first-time last year. As the debt crisis escalated, other Chinese developers also started showing signs of strain – some missed interest payments, while others defaulted on their debt altogether.

The mood changed slightly by mid-March. China signaled support for its companiesHe also indicated that the authorities were working to stabilize its failing real estate sector.

Data from MarketAxess shows that bond trading volume rose to almost $700 million by mid-March. This is nearly 20% higher than $583 million at the beginning of March.

Volumes rose further in March to $700 millions, and then fell slightly in April.

The bond prices rose in line with this trend. Between mid-March and the start of April, Ice Bofa’s high-yield Asian dollar corporate index rose by over 15%.

Three provinces have also loosened their policies, which include removing restrictions on home purchases for those without full local residency status — and that should lift short-term sentiment, said Nomura in a report on April 4.

Nomura noted that policy relaxements were in line with what was expected and that local governments are increasing their awareness and trying to stop the rapid depreciation of the physical property markets. He cited data from government showing that in March, sales fell by 47% in major cities.

Ng, a Natixis representative, said that larger developers can now buy land and acquire real estate assets for a lower price, particularly if they are state-owned. According to Ng, the analysis by the firm found that seven of the ten land acquisitions in 2012 were done by state-owned companies. This is a clear indication that the private market was struggling.

Developer Kaisa announced it entered a strategic cooperationChina Merchants Shekou Industrial Zone Holdings (China Great Wall Asset Management) and China Merchants Shekou Industrial Zone Holdings (both state-owned). According to a Hong Kong filing, the agreement will include asset acquisitions and joint ventures.

A number of developers had announced earlier this year that they would not be able to release financial results on time.