Beijing’s Squeeze On Fragile Real-Estate Developers
Broad bank lending to the real-estate sector, and developers is being squeezed.
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.
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There’s no shortage of design inspiration online but nothing beats the joy of spending an afternoon immersing yourself in a good interior design book. Edited, carefully curated and, above all, designed, these titles take you behind the scenes of some of the world’s most beautiful interiors in a considered way. Think of it like the difference between listening to a few tunes on Spotify versus releasing a thoughtfully crafted studio album. We’ve assembled our top six of interior design books on the market right now for your viewing and reading pleasure.
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2 House of Joy
If there was ever a book title for our times, then this is it. With a subtitle of Playful Homes and Cheerful Living, this book champions fun in interior design, with bold and bright homes from around the world to delight and inspire. While there’s a good dose of the unexpected, like a disco ball in the garden, there’s no mayhem in these spaces. Instead, they’re beautifully executed to tempt even the most colour shy. Gestalten, $105
3. Abigail Ahern Masterclass
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Looking for a visual crash course in international design trends with longevity? This is the book for you. Featuring homes across the globe, from New York to Auckland via Avignon, the biggest dilemma for readers is settling on a style. Many of the projects are owned by designers and creatives, lending a dynamic edge to this tome, now in its 40th year. Taschen, $50
5. Home by the Sea
For many Australians, the ocean holds an almost hypnotic appeal. Home by the Sea by Natalie Walton lets you imagine, for a little while at least, what it’s like living the dream in a beach shack in Byron Bay. The book tours 18 homes in and around the region and the hinterland owned by artists, designers and makers. With photography by Amelia Fullarton, it champions the good life. Hardie Grant, $60
6. The Layered Interior
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