Beijing Allows Real Estate Firms to Issue Debts

By Jonathan Walker | December 13, 2021
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
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CHINA - MARCH 11: Building site Guilin, China (Image: Tim Graham/Getty Images)

Regulators in China have decided to allow real estate companies to issue debts in a move aimed to help the country’s struggling property firms. The money raised via such debts can be used to fund acquisitions of real estate projects and completing unfinished projects.

On Dec. 10, representatives from several real estate firms met with the National Association of Financial Market Institutional Investors (NAFMII), a self-regulatory entity that oversees the country’s interbank market. The organization, which is made up of brokerages, banks, and other financial entities, is tasked with registering corporate bond issues under the country’s central bank, the People’s Bank of China.

After the meeting, NAFMII stated that it will support debt issuance by qualified developers. The organization will prioritize supporting the debt issue of real estate firms that operate strictly within the property guidelines established by Beijing. Many developers like China Merchants Shekou Industrial Zone Holdings Co., aim to soon issue debt instruments in order to fund their acquisition and merger plans.

In October, the issuance of yuan-denominated corporate debt had fallen significantly. Officials are looking to support financially distressed property developers so as to prevent the real estate crisis from creating risks to the wider financial system.

“About half of the 10 biggest real estate companies [in China] are state-owned enterprises, so there is a potential that major purchases will occur in the real estate industry,” Yifan Hu, chief China economist for UBS Global Wealth Management, told Nikkei Asia.

The NAFMII decision comes as two real estate companies, China Evergrande and Kaisa, were declared to be in “restricted default” by Fitch Ratings after the firms failed to make bond repayments. The crisis in the property sector has made Beijing push forward with its campaign to minimize the economy’s reliance on real estate for growth. 

In an interview with Al Jazeera, Henry Chin, head of research for the Asia-Pacific CBRE, said that he expects the Chinese regime to orchestrate a “controlled landing” of the real estate situation, thus averting a crash.

“As a result, market volatility should continue to persist with more defaults still to come – the peak of corporate real estate debt maturity is in 2022, with $55bn in debt set to mature. But we’re likely to see a controlled landing and regulators have recently issued more easing signals to meet reasonable financing needs in the real estate sector,” Chin stated.

In addition to the debt crisis, real estate companies in China are also facing another headache – slowing home sales.

According to a survey by the E-house China Research and Development Institution, unsold housing stock rose to 2.1 percent in November compared to a year earlier. Over 521 million square meters of housing inventories remained unsold for the month and 44.95 million square meters of supply was added in November which saw only 34.37 million square meters in home transactions by volume.

“The biggest problem in current supply and demand is the prominent weakness in home transactions,” the E-house report stated.