Financing conditions ease as property developers issue bonds
Published: Nov 18, 2021 08:32 PM
real estate Photo:Xinhua

Real estate Photo:Xinhua

The financing environment for real estate companies seems to have improved quickly, as many Chinese developers successfully issued bonds in the interbank market.

CRIC, a property research center, said that 25 real estate developers and urban investment companies, including China Merchants Shekou Industrial Zone Holdings Co and Poly Developments & Holdings Group Co, have announced bond issues in the interbank market since November 10. 

The amounts ranged from 300 million yuan ($46.99 million) to 3 billion yuan. In total, these companies raised nearly 30 billion yuan, which exceeded the total financing by the entire industry in October.

"It shows the regulators are easing the debt financing of real estate companies," Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Thursday. 

More companies are issuing bonds, and the issues are larger, Yan said, which has a positive effect on the operation of real estate enterprises, as it is conducive to the collection of payment for November and December. 

Before this series of issues, the National Association of Financial Market Institutional Investors held a meeting with developers on November 9, which was regarded as a signal of loosening of domestic bond issuance by real estate companies.

The interbank bond market is one of the funding channels for many non-financial companies.

On November 11 and 12, more than 20 real estate companies disclosed plans to issue or complete the issuance of short-term bonds and medium-term notes, including China Merchants Shekou and Poly Developments.

The Global Times noticed that the companies issuing bonds this time were mainly state-owned enterprises, and their bond ratings were high. Most of the proceeds were used to roll over debt instruments in the interbank market.

China Merchants Shekou, Poly Developments and Bright Real Estate Group Co received approval to sell a combined 8.6 billion yuan of local bonds on the interbank market this week. If successful, that would make November the strongest for issuance in eight months, according to Bloomberg on Tuesday. 

Market watchers said that given real estate companies' tight capital positions, the ability to issue these bonds is undoubtedly a positive signal for the industry, and many believe that the darkest moment is over.

Several housing developers' sales declined in the second half of this year, and even some defaulted on their debts.

CRIC data showed that in October, 80 percent of the top 100 real estate companies saw a year-on-year decline in monthly sales, of which 44 saw year-on-year declines of more than 30 percent.

As of September 27, the number of bond defaults by real estate enterprises in 2021 stood at 39, up 25 from 2020, for a cumulative amount of 46.75 billion yuan, an increase of 159 percent year-on-year.

In addition to the gradual improvement in the financing environment for real estate companies, there has also been some good news coming in the sector this month.

Data from the People's Bank of China, the central bank, showed that the personal mortgage balance of banks was 37.7 trillion yuan at the end of October, an increase of 348.1 billion yuan that month. 

However, Yan said, the period of maximum stress for housing developers has not yet passed, and the debt problems of many real estate companies are worsening.

China's largest developer Vanke said it will cut unnecessary spending and build a "war time" atmosphere to save costs, according to the China Securities Journal on Wednesday.