"Three Red Lines" End Real Estate Financial Dividend
"China News Weekly" reporter / Chen Weishan
Issued in the 970th issue of China News Weekly at 2020.11.2
The "Golden Nine and Silver Ten" was originally the peak season for real estate sales, but since mid-to-late August this year, the real estate circle has fluctuated. This started at the key real estate company symposium held by the Ministry of Housing and Urban-Rural Development and the Central Bank on August 20. In the official announcement on the symposium , Mentioned for the first time the "fund monitoring and financing management rules for key real estate enterprises" (hereinafter referred to as "new regulations on financing for real estate enterprises").
After the "11th" holiday, within a week, central bank officials twice mentioned the new regulations on financing for real estate companies. Peng Lifeng, deputy director of the Financial Market Department of the Central Bank, said bluntly that one of the purposes of the new regulations is to "correct some companies' blind expansion operations." .
Although some real estate companies have said that they have not yet seen the official documents, the new financing regulations for real estate companies with the "three red lines" as the core content have begun to disturb the entire industry, and they are even regarded by the real estate company as a logic that will change the industry. Regulatory policy.
"Three Red Lines"
After the formulation of the new housing enterprise financing regulations first entered the public eye on August 20, Pan Gongsheng, deputy governor of the central bank, once introduced that it is an important part of the construction of a long-term mechanism for the real estate market and an important part of the real estate financial prudential management system.
Since the prudential management of real estate finance was proposed at the Central Bank Work Conference in February 2018, it has been repeatedly mentioned by regulators on different occasions, but the specific content has never been stated.
According to Pan Gongsheng’s disclosure on October 21, the three macro-prudential policy tools, including real estate loan concentration, residents’ debt-to-income ratio, and real estate loan risk weight, have been drafted and will be gradually implemented in a suitable time window.
The new regulations on real estate financing have been brewing for nearly two years, and the content has not been officially released, but it has been interpreted by the market as the "three red lines", that is, the asset-liability ratio of the real estate enterprise after excluding the advance payment shall not exceed 70% and the net debt ratio shall Greater than 100%, and the cash short-term debt ratio is not less than 1.
According to the number of “steps on the line”, the real estate companies are divided into four levels of “red, orange, yellow, and green”, and the “red level” houses are all stepped on the “three red lines”, and so on, the “green level” houses have not stepped on any A "red line", the upper limit of the annual interest-bearing debt growth rate of the four-tier housing companies has also been set to 0, 5%, 10%, and 15% in turn. The "red-level" housing companies will not be able to add new interest-bearing liabilities.
The first appearance of the new housing financing regulations was the time when listed housing companies held intensive interim performance meetings. Although some housing company management stated that “the rules have not been issued” and “the official documents have not been seen yet,” they still set financial indicators. Comparing with the "three red lines".
A person from the management of a listed real estate company told China News Weekly that the company did not participate in the symposium, but after the "three red lines" were circulated in the industry, the company internally required all financial indicators this year to be controlled in accordance with the requirements of the "red lines". I haven't heard of the penalties that we will face if we fail to meet the standards within a certain period of time."
According to the two statements made by central bank officials in September and October, the scope of application of the new housing enterprise financing regulations will "steadily expand."
Some real estate industry insiders told China News Weekly that the new regulations should apply to "key real estate companies" such as the top 200 and top 500 in sales in the future. "Even without the'red line' constraint, some small developers are now financing It's already very difficult." While some real estate companies that participated in the forum have already given a timetable for "compliance", Sunac China's management said that they will strive to meet the requirements in three years.
Against the "three red lines" of the standard, how are the real estate companies' "achieving standards"?
According to China Securities Pengyuan’s statistics on 201 bond-issuing sample real estate companies, from the data at the end of 2019, the median of the three indicators of asset-liability ratio, net debt ratio, and cash short-term debt ratio of the sample real estate companies excluding advance receipts They are 70%, 71.4%, and 1.29. It can be seen that the standards set by the "three red lines" are basically equivalent to the median level of the 201 real estate companies, which also means that at least half of them cannot "do not step on the red line."
"Under the regulatory requirements of the'three red lines', the more dangerous are those private housing companies with high debt ratios and a large number of holding assets." The aforementioned listed housing company management told China News Weekly, SASAC There has always been a red line for the debt-to-asset ratio of central enterprises. If they step on the line, they will be deducted in the annual assessment, which will affect the company's rating. Therefore, the company's finances have been relatively stable.
"The financing costs of state-owned real estate companies such as China Shipping and China Resources are even equivalent to the interest rates of wealth management products, which can be as low as 3% or 4%. The interest rates are determined by the market based on risk judgments. In contrast, the financing of some leading private housing companies The cost is as high as 13% to 15%." He said, "It shows that these companies are continuously increasing leverage. If financial institutions continue to lend to them, interest rates will get higher and higher, and debt will roll up more and more, which is a vicious circle."
"In the past, some of the real estate finance supervision was vague, but the awkward point was that the rules can be changed at will. This time it is regarded as a clear indicator for which real estate companies will be restricted in financing." The aforementioned real estate industry insiders told reporters. "If the'red file' real estate companies cannot add interest-bearing liabilities, the impact will be greater."
The management of Longfor Group stated at this year's interim results meeting that the state has gradually formed an operable and clear basis for guidance in many actions this year.
"Boots" landed, and the impact of real estate financing began in September.
According to data released by Tongce Research Institute on October 12, 40 typical listed real estate companies raised a total of 40.214 billion yuan in September, down 51.41% from the previous month, which was the lowest monthly level this year.
On the surface, the amount of money that real estate companies can borrow has decreased, but what has changed deeply is the rules of the game for the entire industry.
End the real estate financial dividend
"Real estate prices in some places have begun to rebound, and financial resources may once again be concentrated in high-risk areas." In August of this year, Guo Shuqing, Chairman of the China Banking and Insurance Regulatory Commission, wrote an article in Qiushi, reminding that the real estate bubble is the biggest threat to financial security. .
"We felt that this trend should be a few years ago, but we are not sure when the government will announce such a policy." At the end of September, Vanke Chairman Yu Liang said when talking about the "three red lines", because the real estate industry The proportion of finance is getting higher and higher, and financial resources are being over-occupied. This is not a good thing for the economy. To a certain extent, the state will definitely take measures.
Less than a month later, when Yu Liang talked about the "three red lines" again, he said that this reflects that the country does not want the real estate industry to occupy too much financial resources, and the industry will return from the national pillar industry to the ordinary industry.
How does the real estate industry occupy financial resources?
The "Statistical Report on Loan Investment of Financial Institutions in the Second Quarter of 2020" shows that as of the first half of 2020, the loan balance of financial institutions was 165.2 trillion yuan, of which the balance of real estate loans was 47.4 trillion yuan.
Judging from the amount of new loans, almost every 4 yuan of loans increased, 1 yuan went to real estate.
Although the loan balance of 47.4 trillion yuan, personal housing loans exceeded 30 trillion yuan, and real estate development loans accounted for 11.97 trillion yuan, accounting for about a quarter, but this is only a corner of the interest-bearing debt of real estate companies.
A person from the financing department of real estate companies introduced to China News Weekly that from the perspective of financing channels for real estate companies, group companies mostly finance through bonds. From January to July this year, the cumulative net financing scale of domestic bond issuance by real estate companies exceeds 140 billion yuan. This is a substantial increase of less than 10 billion yuan over the same period last year.
As for the project company, in addition to standard loans such as development loans, there are other non-standard loans. It is common for trust companies to issue entrusted loans to real estate companies through banks. "Generally, it is a one-to-one negotiation, and the interest rate can reach 7%~ 9%."
The tilting of financial resources towards real estate gave birth to what Yu Liang called the "financial dividend stage". He believed that the land dividend stage before the full implementation of the land bidding, auction and listing system in 2002 was the land dividend stage. Whoever can get the land can make money, and entered after 2002 The financial dividend stage is "Whoever has the ability to obtain bank and capital support can buy more land."
"Even if it is a well-decorated house, the construction cost per square meter may be only about 2,000 yuan, but the land price can easily be 10,000 to 20,000 yuan per square meter. Real estate companies have been leveraging more land resources. You cannot use loans to buy land. It is expressly prohibited by the state, but the money for the project company’s acquisition of land generally comes from shareholder loans.” The person from the financing department of the real estate company explained that “the project company generally acquires the land, and it will borrow from shareholders, that is, the group company, and pay for the land. , And then obtain a loan from the trust company to repay this loan. Many trust projects use funds to "repay shareholder loans", avoiding the purchase of land, and the group company may use it to invest in other land after the loan is recovered."
The central bank put forward in the "China Financial Stability Report (2018)" to prevent improper and excessive financing in the real estate sector.
For example, financing restrictions are imposed on real estate companies that have high debt ratios, large amounts of land acquisition, house hoarding and market speculation, and the phenomenon of creating land kings.
"In the past few years, they have basically relied on high leverage and high turnover models. Real estate companies that have done the most extreme have developed faster." According to the aforementioned listed real estate company management, "For example, a real estate company has 2 billion yuan in funds. With any leverage, if you need 1.5 billion yuan to buy a piece of land and 500 million yuan of your own funds are left as the construction cost, the real estate company can generally have 8%-10% of the profit, even if it is relatively high, the house may be sold out after 3 years It’s very slow to get back 2.2 billion yuan."
"But if you invest 1.5 billion yuan in three plots of land, the remaining funding gap will depend on financing, and you will advance three projects at a time. At the same time, you still have 500 million yuan in your own funds. With a profit of 200 million yuan, and then investing in this way, you can continue to double, faster and faster." The management person said, "The real estate circle joked that some real estate companies get a piece of land almost every day. The “Red Line of the Road” limits the room for debt growth of real estate companies, and this logic will no longer apply. Real estate companies have also lost the opportunity to develop rapidly through increased leverage a few years ago."
Zhao Xiuchi, vice president and secretary-general of the Beijing Real Estate Law Society, analyzed to China News Weekly that in the rapid development stage of the real estate industry, the market is rapidly degrading, and real estate companies can quickly withdraw funds, and high leverage risks are not easily exposed.
"However, under the current strict real estate control policies of purchase restrictions, loan restrictions, price restrictions, business restrictions, and sales restrictions, real estate sales are slow, and it is difficult to quickly recover funds to repay liabilities. This will increase the capital cost of enterprises and reduce corporate profits. Conducive to the steady operation of the enterprise."
At Sunac China’s interim results meeting, Sun Hongbin, chairman of the board of directors of Sunac China, said, “It’s basically impossible for a carp to jump through the dragon gate, and the top ten real estate companies have basically solidified.”
In Yu Liang’s eyes, the “three red lines” put an end to the financial dividend phase, and “the management dividend phase will be entered after 2021.”
What about the real estate company?
Judging from the data of 100 listed real estate companies in Zhuge's housing search statistics, the scale of interest-bearing liabilities of real estate companies in the first half of this year is still increasing, reaching 7.8 trillion yuan, an increase of 6.82% compared to the end of 2019.
Now, real estate companies have begun to deleverage, especially the 12 "key real estate companies" that participated in the August 20 forum.
In addition to Sunac China's clear timetable for achieving the "three red lines", China Evergrande also proposed a plan to reduce debt.
The management of China Evergrande reported at the interim results meeting this year that compared with the development strategy of “high growth, scale control, and debt reduction” put forward at the end of March 2020, the debt has dropped by 40 billion yuan in a quarter.
Pan Darong, chief financial officer of China Evergrande, said that in the second half of the year, we will reduce debt with the greatest determination and strength, and "strive to reduce interest-bearing debt by an average of 150 billion yuan per year from 2020 to 2022."
This is not the first time that China Evergrande has proposed to reduce debt. At the 2018 interim results meeting, China Evergrande President Xia Haijun once stated that the net debt ratio will be reduced to 70% by 2020, and that this is reasonable in the industry. s level.
Obviously, this goal has not been achieved.
According to Zhuge's housing search statistics, as of the first half of this year, China Evergrande’s interest-bearing liabilities amounted to 922.143 billion yuan, an increase of 8.36% from the end of last year.
Today, the "three red lines" are at the top. On October 23, China Evergrande redeemed a US dollar bond with a total principal of US$1.565 billion and an annual interest rate of 11%. So far, the company has no bonds to repay this year.
This is the third time that China Evergrande has repaid a large amount of debt in 10 days. The total debt repayment reached 29.4 billion yuan.
Where does the money for debt repayment come from?
"If the real estate company is in the'red gear', the debt scale cannot be expanded. By selling the house to repay the debt, the debt ratio can naturally be lowered. Just like ordinary people buying a house, they start to earn wages and repay after taking out a loan," said a real estate industry insider.
"Increase sales and return payments" has also been listed by Evergrande's management as the primary debt reduction measure.
On September 7th, China Evergrande announced that until October 8th, the national real estate sales will be 30% off, and it plans to achieve a total of 200 billion yuan in sales in the two months of "Golden Nine Silver Ten".
According to the data announced by China Evergrande, between September 1 and October 8, the contracted sales amount was 141.63 billion yuan. In August, the figure was 51.48 billion yuan.
Whether it can reach 200 billion yuan in sales in the "Golden Nine and Silver Ten" is still unknown, but Evergrande’s price per square meter of houses from September 1 to October 8 dropped by more than 1,000 yuan from August.
High volume sales are becoming the choice of domestic real estate companies.
From the data of September, which is traditionally a peak sales season, according to the statistics of real estate information service provider Kerry, the top 100 real estate companies across the country achieved sales of 119.56 billion yuan in September, a year-on-year increase of 29% and a month-on-month increase of 22%. .
But behind the growth in performance is a more substantial increase in supply. The supply area of 30 key monitored cities increased by 37% month-on-month in September, which was much higher than the increase in transactions.
Crane also stated in the report that the sale rate of large-scale real estate companies showed a downward trend in September. “Many real estate companies have a low degree of completion of their annual performance targets, and current sales and sale are under pressure.” In other words, houses Not easy to sell.
"The'three red lines' for some real estate companies are equivalent to not being able to borrow new money while making money to deleverage. This requires companies to sell their existing projects well, but the current market conditions are not very good and the pressure will be greater "Some managers of listed real estate companies bluntly said to reporters that in addition to accelerating payment through sales, real estate companies will also control the pace of land acquisition.
The land market has begun to cool down, and the enthusiasm of real estate companies to acquire land is declining.
In September, while the premium rate of land transactions fell, the phenomenon of unsold auctions increased significantly, and the rate of unsold auctions in urban areas, which Crane focused on monitoring, rose to 9.3%.
Sun Hongbin said at the end of August, “Now is the time when the land market is at the greatest risk. Land auctions are expensive and it is not a good time to acquire land.”
China News Weekly, Issue 40, 2020
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