Beijing’s Squeeze On Fragile Real-Estate Developers
Kanebridge News
Share Button

Beijing’s Squeeze On Fragile Real-Estate Developers

Broad bank lending to the real-estate sector, and developers is being squeezed.

By Mike Bird
Fri, Apr 30, 2021 2:16pmGrey Clock 2 min

“Housing is for living, not for speculation,” has been a Chinese government mantra for almost half a decade. This year, it appears that slogan finally has teeth. But new restrictions on bank lending leave developers tapping a unique source of funding, which could have damaging consequences of its own.

Late last year, Chinese regulators announced that property lending should make up no more than 40% of banks’ total lending, effectively putting an end to years of steadily increasing exposure to real estate.

Looking across major Chinese banks’ results for 2020, they are very much at that limit in aggregate. At the big four—Bank of China, China Construction Bank, Agricultural Bank of China and Industrial and Commercial Bank of China—real-estate lending ran to between 37.5% and 42.2% of total loans, according to Capital IQ.

That adds to the squeeze on bond issuance from Beijing’s “three red lines” policy, which restricts further borrowing if developers don’t satisfy three leverage benchmarks. Most don’t, and issuance has eased to the smallest amount in three years in early 2021—down by a third relative to the same period in 2019—according to S&P Global Ratings.

That means a further shift to the last meaningful source of funding left, deposits direct from home buyers, is inevitable.

Deposits often constitute a large proportion of the property’s value and are now largely paid upfront, long before a property is actually built. Without a national escrow system in place, this allows developers to use today’s deposits to fund yesterday’s commitments.

China Vanke, one of China’s largest developers, reported 53.52 million square meters (about 576 million square feet) of projects it has sold but which remain unfinished. That is equivalent to more than 18 months of completions at last year’s building rate. Vanke’s unearned revenue figure—payments accepted for work not finished—sits at $104.15 billion, more than three times its level at the end of 2015, and jumped by around $7.8 billion in the first three months of 2021 alone.

That accelerated shift is also clear from official industrywide data. Deposits are now the largest single source of real-estate developer funding, and in the 12 months to March, deposits and advance payments rose 23.9%, far outstripping the 14.1% growth in other funding sources.

That makes domestic news reports about a growing number of frustrated buyers worried about repeated delays to construction, like one carried by Xinhua News Agency earlier this month, particularly interesting and concerning.

Chinese home buyers aren’t sophisticated creditors like bondholders or banks, but they carry unparalleled political weight. Leaving them to foot the bill for the excesses of fragile real-estate developers is a risky decision.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: April 29, 2021.



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
Jennifer Lopez and Ben Affleck Officially List Their Massive Beverly Hills Mansion for $68 Million
By BECKIE STRUM 12/07/2024
Property
The faster pathway to building wealth is no longer how much you earn, investors believe
By Bronwyn Allen 11/07/2024
Local
Property of the Week: 8 Robertson Street, Toorak
By Josh Bozin 10/07/2024
Jennifer Lopez and Ben Affleck Officially List Their Massive Beverly Hills Mansion for $68 Million

The celebrity power couple are selling the 12-bedroom, 24-bathroom home barely a year after buying it

By BECKIE STRUM
Fri, Jul 12, 2024 2 min

Jennifer Lopez and Ben Affleck have officially put their massive Los Angeles mansion on the market for $68 million.

The lavish Beverly Hills property hit listing sites on Thursday, months after rumours began that the couple, who are reportedly estranged , were shopping the home around only a year after buying it for nearly $61 million.

The roughly 5-acre property—which is in a gated community and spans a massive 38,000 square feet—includes an indoor sports court with an adjacent gym and games room, according to the listing with Santiago Arana of the Agency. The firm declined to comment.

Lopez and Affleck paid $60.8 million for the compound in 2023.
Google Maps

Built in 2000, the house has 12 bedrooms and a whopping 24 bathrooms. The resort-sized property has the amenities to match, including a V-shaped pool with views over the surrounding hills, a detached two-bedroom guardhouse and a 5,000-square-foot guest penthouse, according to the listing.

Listing images of the house show that Lopez and Affleck have spent the past year warming up what were fairly white-washed interiors when they purchased the home. There’s now a rich, green-painted dining room, hardwood floors and carpeted over cold, polished-stone flooring.

The couple, who got married in 2022 after reuniting some 20 years after they called off their engagement in the early 2000s, purchased the megamansion following a house hunt that went on for several months, The Wall Street Journal reported at the time.

Representatives for Lopez, 54, and Affleck, 51, did not immediately respond to requests for comment.

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
These little known suburbs are offering the highest rental yields around the country
By Bronwyn Allen 25/06/2024
Property
China’s Housing Market Woes Deepen Despite Stimulus
By REBECCA FENG 18/06/2024
Property
Knight Frank and Bayleys acquires third largest real estate firm in Australia
By Robyn Willis 28/06/2024
0
    Your Cart
    Your cart is emptyReturn to Shop