According to the central bank’s website on August 23, on August 20, the Ministry of Housing and Urban-Rural Development and the People’s Bank of China held a symposium on key real estate companies in Beijing to study and further implement the long-term mechanism for real estate.

Image source: Central Bank website

Formation of key real estate companies

Fund monitoring and financing management rules

Previous market financing policies for real estate companies Discussions about tightening the rules continued, and the meeting clearly formed rules for fund monitoring and financing management of key real estate companies.

The meeting pointed out that in order to further implement the long-term mechanism for real estate, implement the prudent real estate financial management system, and enhance the marketization, regularization and transparency of real estate enterprise financing, the People's Bank of China and the Ministry of Housing and Urban-Rural Development, together with relevant departments, have Based on extensive solicitation of opinions in the early stage, rules for fund monitoring and financing management of key real estate enterprises were formed.

Many industry experts and brokerage analysts have previously stated that judging from the recent performance of the property and land markets, there is the possibility of further tightening of real estate financing policies.

From the perspective of the real estate financial prudent management system, the fund monitoring and financing management rules for key real estate enterprises formed by the Central Bank and the Ministry of Housing and Urban-Rural Development in conjunction with relevant departments can also be understood as part of the real estate financial prudent management system.

China’s Monetary Policy Implementation Report for the Second Quarter of 2020 pointed out that it firmly adheres to the positioning of "houses are for living in, not for speculation", insists on not using real estate as a means of short-term stimulus to the economy, and insists on Stabilize land prices, house prices, and expectations, maintain the continuity, consistency, and stability of real estate financial policies, and implement a prudent real estate financial management system.

Moderate adjustments to financing policies

It will help curb the radical expansion of real estate companies

Experts said that the real estate market has become more popular recently, and housing prices in some cities have increased rapidly. With rising momentum, the land market is active. Appropriate adjustments to financing policies will help curb the radical expansion of real estate companies and prevent the accumulation of debt risks. In this process, some real estate companies with excessive financial leverage and poor repayment capabilities may face challenges.

In fact, many regions have tightened real estate controls before, many of which involve real estate financing policies. For example, Xianyang City, Shaanxi Province issued a notice requiring strengthening the review of sources of funds for development and land purchase, prohibiting real estate development companies from raising funds through bank loans, trust funds, insurance funds, capital market financing, asset management plan allocation, bond issuance, etc. Pay the land bidding deposit, deposit and subsequent land transfer price.

Sun Binbin, chief fixed income analyst of Tianfeng Securities, pointed out that with the recovery of the economy, housing prices in first-tier cities and some hot second-tier cities have shown a significant upward trend recently. At the same time, the land market continues to be active. On the one hand, it shows that real estate companies are not currently tight on funds; on the other hand, it may further stimulate expectations of rising housing prices. The rapid recovery of real estate sales has led to a continued large-scale increase in medium- and long-term credit for residents, and the problem of excessive occupation of financial resources by real estate may once again arouse concern.

The debt financing of some real estate companies will be affected

Many experts said that under the fund monitoring and financing management rules of key real estate companies, the debt financing of some real estate companies is expected to be affected to a certain extent.

Yang Yewei, chief fixed income analyst at Guosheng Securities, believes that the scale of credit bond issuance in the real estate industry reached 64.2 billion yuan in July, hitting a new high. At the same time, since the second quarter, many places have imposed penalties for illegal capital flows into the property market.

The China Banking and Insurance Regulatory Commission has repeatedly emphasized recently that it will resolutely prevent the resurgence of "shadow banking", the resurgence of real estate loan chaos, and the return of blind expansion and extensive operations.

Sinolink Securities analysts said that it will be difficult for real estate companies to expand their business scale through borrowing debt in the future, and part of the debt repayment will also need to rely on sales returns. This will directly affect the external cash flow and operations of real estate companies. The decision has prompted real estate companies to speed up cash collection and reduce leverage, which will have a greater impact on real estate companies with high debt ratios and those that rely on bond financing, but will have a relatively limited impact on the solvency of leading and stable real estate companies.

Image source: Guojin Securities

Shi Xiaoshan from the Research and Development Department of CSI Pengyuan Ratings said that the industry characteristics of real estate companies determine their reliance on debt operations, and the focus is to carry out reasonable debt management manage. When a company encounters a negative impact, it needs to focus on measuring its short-term solvency.

Experts from the China Index Academy said that real estate companies should improve the sophistication of fund management, establish a refined fund management system, optimize fund use links, and ensure efficient fund operation. At the same time, real estate companies should continue to increase turnover speed, control land acquisition costs, improve capital use efficiency, and continue to seek benefits from management.

Source: China Securities Journal