Financing Variation Of Real Estate Enterprises Under The "Three Red Lines": Financing Scale Drops By 16% And Debt Repayment Pressure Is Still At A High Level

Since last year, a series of new financing management policies have been introduced, which have a gradual impact on the real estate industry.

Since this year, there have been some new changes in the real estate financing market. According to the statistics of Shell Research Institute, in the first half of 2021, the accumulated bond financing of domestic and foreign real estate enterprises was about 548 billion yuan, a year-on-year decrease of 16%, and a decline for two consecutive years. In addition, there is little change in financing costs, but the phenomenon of differentiation is very obvious. The financing costs of head real estate enterprises can be as low as 3%, while the costs of some small real estate enterprises can still reach double digits.

The change of policy is the main reason that affects the financing behavior of real estate enterprises. In the middle of last year, the "three red lines" policy for quantitative management of financing scale of real estate enterprises was introduced. At the end of the year, the central bank and the CBRC implemented "five file management" on the proportion of real estate loans and personal housing mortgage loans of financial institutions. These measures limit the financing scale of real estate enterprises, but also force real estate enterprises to make efforts at the sales end. In the first half of this year, the national real estate sales continued to grow, and many real estate enterprises achieved a substantial increase in sales scale in the first half of this year.

But even so, due to the large scale of loans in previous years, the debt repayment pressure of real estate enterprises is still at a high level. It is expected that for some time in the future, the real estate enterprises will continue to try to broaden the financing channels, while the dependence on sales side payment will increase.

Policy influences on multiple levels

According to the statistics of Shell Research Institute, in the first half of this year, domestic and foreign bond financing of real estate enterprises accumulated about 548 billion yuan, which was 129.6 billion yuan and 102.6 billion yuan respectively compared with the same period in 2019 and 2020. Among them, the domestic financing scale decreased by 7% year-on-year, and the overseas financing scale also decreased by 29%.

The mechanism of domestic and foreign bond markets is different, but they are faced with certain uncertainty. The aforementioned institutions believe that the overall domestic bond market in the second half of the year is mainly stable, but the policy pressure can not be ignored. In terms of overseas bond market, affected by inflation and rising unemployment rate, the scale of US dollar bonds contracted and expectations rose.

In terms of cost, the average coupon rate of domestic bonds in the first half of the year was 5.07%, an increase of 79 basis points over the same period in 2020. The average coupon rate of overseas bond financing was 6.95%, 144 basis points lower than the same period in 2020.

In recent two years, due to the pressure of profit, real estate enterprises try to control the financing cost by various means. Since the second half of last year, some real estate enterprises have replaced their debts by borrowing the new and repaying the old ones, and diluted the cost of capital. However, since this year, with the high pressure of policy and the arrival of the peak of debt repayment, the demand for debt issuance of real estate enterprises has increased significantly, and the cost of debt has also risen.

But not all real estate enterprises will bear high costs. Similar to the past, the phenomenon of differentiation is still significant. In June this year, Vanke lowered the coupon rate of "180000 ke01" bonds from 4.05% to 2.8%. The $200 million senior note issued on June 25 in Huashi year has an interest rate of 14.50%.

The differentiation of financing cost reflects the obvious difference of capital attitude towards different real estate enterprises, which is also one side of industry differentiation. But different from the old logic of "scale is king", with the introduction of the "three red lines" policy, the standard of capital consideration is also quietly changing.

An official in charge of financing department of a large real estate enterprise in East China told 21st century economic reporter that institutional investors not only pay attention to the scale of real estate enterprises, but also pay more attention to the fundamentals of the company. Among them, with the "three red lines" as the standard, the situation of real estate enterprises is the index that the capital side pays close attention to.

"In the past, the" top 30 "and" top 50 "real estate enterprises were more likely to gain advantages in financing. But recently, large-scale real estate enterprises have also begun to "explode". In the research and judgment model of investors, the importance of scale has decreased significantly. " The person said.

The influence of policy is also reflected in the choice of financing channels. Due to the great pressure of policy, real estate enterprises have tried to broaden financing channels. In addition to conventional bond financing, the scale of non-standard financing was also expanded.

In May this year, Shanghai and Shenzhen exchanges terminated ABS projects in large quantities, including many housing related projects. Although the official interpretation is the normal operation of "project overdue treatment", analysts generally believe that the later issuance of domestic non-standard financing products will inevitably be affected.

Debt repayment pressure is still high

In the case of limited financing, the dependence of real estate enterprises on the sales side is further strengthened. According to data from Shanghai E-House Real Estate Research Institute, in the first half of this year, top 100 real estate enterprises accumulated a total of 6149.91 billion yuan, an increase of 36.7% year-on-year. Among them, the sales scale of nearly half of the top 100 real estate enterprises increased by more than 50% compared with the same period in 2019.

This achievement is not only supported by the general trend of the market, but also the result of the real estate enterprises' initiative to make profits. The above-mentioned real estate enterprise said that since this year, its company's cash flow management has been strengthened unprecedentedly. Its "turnover" projects have generally accelerated the pace of sales, and recovered funds through the way of profits. Some "profit" projects have also made price concessions.

According to the statistics of China Index Research Institute, in the first half of the year, the overall market of new residential buildings in 100 cities was relatively stable, with a cumulative price increase of 1.70%, an increase of 0.43 percentage points compared with the same period last year, but still at a low level in the same period of the past five years.

Nevertheless, the pressure to pay back debt is still there. According to the statistics of Shell Research Institute, in 2021, the company reached the extreme value of its historical debt repayment scale, with a total debt repayment amount of 1282.2 billion yuan, 699 billion yuan and 583.2 billion yuan in the first and second half of the year, respectively.

From a single month point of view, since November 2020, the situation that the net financing of real estate is negative continues to appear, that is, the scale of newly issued bonds is less than that of due debts.

According to the shell Research Institute, although the repayment scale of real estate enterprises will shrink in the next two years (2022-2023), the current debt pressure can not be ignored. And under the strict control of the policy, the situation of debt default has begun to appear intensively.

According to public information, in the first half of the year, 23 bonds were listed as "low-grade and high-risk bonds" by appraisal institutions, mainly involving five real estate enterprises such as Xiexin, involving a bond scale of 33.72 billion yuan. Among them, there are 11 bonds with substantial default, involving 10.43 billion yuan.

In addition, five real estate companies were added to the rating watch list. In addition to small enterprises, large and medium-sized real estate enterprises may also fall into debt mire.

Most respondents pointed out that with the normalization of policy supervision and the gradual expansion of the "three red lines" pilot project, the financing side of real estate enterprises will continue to be limited in the future. Improving enterprise rating and broadening financing channels will still be the main means to deal with the policy, and making efforts at the sales side will also be the main strategy of the enterprise. But in the short term, the debt pressure of the real estate industry is still relatively large, and the number of default cases may continue to increase.

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