Chinas Housing enterprises are the largest in the world. In the Fortune 500 released on July 22, the five listed real estate enterprises (Hengda, Biguiyuan, Greenland, Poly and Vanke) all come from China.
China should also have the largest number of Housing enterprises in the world. According to the statistics of the National Bureau of Industry and Commerce in 2018, the number of registered real estate developers in China has reached 97,000.
The essence of real estate development is driven by leverage and debt. When both conditions change, the best days of the industry will pass. Every edition notes that data from the Peoples Court Notice Net show that as of July 24, 274 real estate enterprises in China issued bankruptcy announcements in 2019, of which 3 were issued yesterday (24).
More than 200 housing companies declared bankruptcy
From the 18-page list of peoples court announcement network, we can see that this years bankruptcy is basically some small and medium-sized housing enterprises, many of which we have not even heard their names.
Some Housing enterprises declared bankruptcy this year (photo source: Peoples Court Announcement Network)
The increase of financing cost is an important reason for the bankruptcy of these small and medium-sized housing enterprises. According to Kreis statistics, in terms of financing costs, the average cost of issuing domestic debt of 95 Housing enterprises was 4.97% in the first half of this year, while the cost of issuing overseas debt was 8.34%. In fact, since 2018, the cost of overseas bond issuance of Housing enterprises has remained high. Especially in October 2018, the cost of overseas bond issuance exceeded 8%, and remained above 7.5%.
A recent study on Chinas commercial real estate investment market released by Gaoli International in East China points out that the days of easy access to financing or refinancing are over. Therefore, investors need diversified financing means to ensure future capital requirements and reduce financing costs. The survey results show that banks are still the most dependent. More than 35% of the respondents said that bank loans will be their main source of funds, followed by joint ventures and strategic alliances, trust, structured products and issuance of foreign bonds, with corresponding proportions of 13%, 12%, 11% and 11%, respectively.
Financing of Housing Enterprises is Tighter and Tighter
In the first quarter of 2019, Renminbi loans increased by 581 trillion yuan, an increase of 952.6 billion yuan over the same period of last year, compared with 486 trillion yuan and 633.9 billion yuan in the first quarter of 2018, respectively. From the perspective of sub-departments, household sector loans, mainly personal housing mortgage loans, increased by 1.81 trillion yuan, compared with 1.75 trillion yuan in the same period last year.
The overheating of real estate also implies financial risks. In this context, since the second quarter of this year, the financing environment of Housing enterprises has suddenly begun to tighten. According to the incomplete statistics of the International Finance Daily:
On April 19, the meeting of the Political Bureau of the Central Committee made it clear that we should adhere to the orientation that houses are used for living, not for speculation, and implement the long-term control mechanism ofone city, one city, one city, and the main responsibility of the city government. This meeting re-emphasized structural deleveraging. On the same day, the Ministry of Housing and Construction interviewed some city government leaders, emphasizing that the real estate market regulation and control objectives remain unchanged. The signal of tightening real estate policy is emerging.
On May 18, the Ministry of Housing and Construction again warned four cities. After that, the Ministry of Housing and Construction issued early warning tips and interviewed some city government leaders, continuing the trend of stringency.
In June, Guo Shuqing, Secretary of the Party Committee of the Peoples Bank of China and chairman of the China Banking and Insurance Regulatory Commission, publicly stated at the 11th Lujiazui Forum that we must face up to the problem of real estate financialization in some places. In recent years, the leverage ratio of some urban household departments in China has risen sharply, and a considerable proportion of household debt ratio has reached unsustainable level. What is more serious is that about half of the new savings resources of the whole society have been invested in the real estate sector. Some real estate enterprises have overcrowded out the credit resources, resulting in the efficiency of the use of funds. The further reduction of the rate has contributed to speculation in real estate investment.
After June, domestic debt, ABS, trust and US dollar debt were tightened to varying degrees.
On July 22, the Securities Times wrote that the role of real estate as an economic stabilizer should not be neglected, but it is more important to guard against financial risks in real estate. The orientation of no speculation in housing and the goal of stabilizing land prices, stabilizing house prices and stabilizing expectations of real estate regulation will not change.
Institutions: Reducing Leverage and Accelerating Payment Return
Every editorial notes that Hengda Research Institute report shows that the period 2019 to 2021 is the peak of interest-bearing liabilities of housing enterprises. By the end of 2018, the balance of interest-bearing liabilities of the main real estate channels will be 20.3 trillion yuan, which will be concentrated between 2019 and 2021. The maturity scales are 6.8 trillion yuan, 6.6 trillion yuan and 5.4 trillion yuan, respectively.
And in order to repay the money, there are real estate enterprises have been fighting! Taihe Group, a A-share listed company, announced this month that it intends to publicly issue US$1.8 billion in bonds overseas, and has now completed US$400 million in bond issuance. It is worth noting that the annual coupon of the bonds issued by Taihe Group is as high as 15%, which is paid every six months, which is equivalent to 2-3 times the normal financing rate.
Data source: Wind
In addition to issuing bonds, some housing companies are also financing through listing. On July 16, Zhongliang Holding Group was listed on the Hong Kong Stock Exchange for one of the purposes of raising capital, i.e. repaying trust loans. According to its prospectus data, by the end of 2018, there were 109 trust or asset management plans in Zhongliang that had not yet been repaid, totaling 14.7 billion yuan, accounting for 54.5% of the total borrowing. Four of these trust loans will expire in 2019, and one of them will have an interest rate of 13.83%.
After the bell ringing ceremony, Huang Chunlei, executive director and CEO of Zhongliang Holdings, said on the spot that financing for real estate in the second half of the year is expected to be tightened, and there have been relevant signs in the near future.
Guotai Junans research report points out that in the second half of this year, it is expected that the financing policy will be stable, the proportion of traditional financing methods such as development loans in industry financing will increase, and the scale of financing in unregulated areas such as real estate business tickets may expand. At the same time, in the second half of the year, the financing cost of the real estate industry is expected to rise, and the capital level will continue to be under pressure. The focus of the housing enterprises will accelerate the transfer to the targets of reducing leverage and speeding up cash withdrawal.