2022年1月17日

Experts remind: finance high interest money, with high prices of housing enterprises will face risks

China News Service Beijing December 2 (reporter Pang Wuji) Qin Hong, former director of the Policy Research Center of China’s Ministry of Housing and Urban-Rural Development, said at the 2021 China Real Estate Big Data Conference on Wednesday that real estate companies can be roughly divided into four categories, among which those that “borrow money with high interest and acquire expensive land” face higher risks.

‘It is rare in the history of China’s property market that the front end (development, investment, new construction) and the back end (sales) rose in the first half and fell in the second half,’ Ms. Qin said.

The reason, Qin Hong analysis said that since last August, the official financing of key real estate enterprises “three red lines” management and the implementation of real estate loan concentration of commercial banks from this year, the real estate industry capital demand and supply at both ends of the tightening. This has changed the “three high” development mode of high leverage, high turnover and high gross profit formed in the real estate industry over the past 20 years.

In addition, the default of real estate enterprises has brought a series of chain reactions. Financial institutions, local governments and home buyers’ risk appetite for the real estate industry has decreased significantly, so the market has turned rapidly.

Qin Hong believes that some real estate enterprises do face greater liquidity risk, but need to consider classification. She divides real estate companies into four categories. One is the risk of housing enterprises crossing industries and diversifying investment. In fact, this kind of enterprise is not real estate risk, and only individual enterprises, the number is not much.

Two is the past financing high interest money, housing enterprises with high prices, these enterprises are higher risk. Mr Qin points out that China’s real estate development pattern is completely different from the past — places with strong demand tend to have price limits, while places with no price limits have weak demand. But the “three high” development model of real estate enterprises will not work without high housing prices. Therefore, the enterprises that used to borrow money at high interest rates and grab expensive land will face the problem of unsustainable business model and high risk.

The third is affected by policies and other factors affecting the housing enterprises. Although such enterprises have debt, but the brand effect is good, financing cost is not high, land price is not expensive, operating cash flow is very stable.

Fourth, low debt ratio of housing enterprises. They may be top companies in tier 3 and 4 cities, but they are not on the “white list” of banks, cannot raise money and have a low debt ratio.

The latter two are still suffering from tighter financial conditions, but Ms. Qin said they can expect robust growth as long as normal demand for property financing can be restored by policy adjustments.

In the past, the real estate industry has been “the big constant big, the strong constant strong”, but Qin Hong pointed out that in the future, the new differentiation pattern of these four types of enterprises will inevitably appear, real estate enterprises may no longer be based on the size of the “hero”. (after)

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