With continuous tightening financing and deleveraging, what will happen to real estate landscape in China?
Feb 23, 2021 (China Knowledge) - The source of financing has been relatively loose in China during 2015 and 2016. With the rapid development of financing through bonds and alternative lending has increased leveraging. The overall debt ratio of listed real estate companies has reached 80% at one point in 2018. As the financial policies shifts to deleveraging and companies undergo strong supervision, it will be more difficult for real estate companies to raise cash. To add on, they will need to rely on their own operating cash flow to pay for its maturing debts.
Banks are reviewing their credit lines and companies that’re not on the list to support companies or industries aligned with the government policies will not be on its priority. The financing leverage of real estate has peaked, it will be highly unlikely for banks to extend its credit lines to the sector. Real estate developer Vanke has chosen ‘survival’ for the next few years as their company’s business direction, meaning they will do anything to survive and not succumb to insolvency due to change in financial policies.
Analysts are confident that the Chinese government will somehow relax on real estate financing strategies but will bring on additional cooling measures to deter the Chinese real estate sector to turn into what’d happened in 2007– U.S excessive lending on housing that led to financial crisis.
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