China Fortune Land Development Co. Ltd. (600340.SH) released announcement on March 13, stating that its subsidiary Jiutong Family Estate Investment Co., Ltd. has finished issuing corporate bonds for 2018 through private placement. The bonds issued are worth 1.09 billion yuan with a term of five years. In addition, China Fortune Land Development also plans to issue 2 billion US dollars of bonds this month to be used in new town projects in China.
China Resources Land Limited (01109.HK) released announcement on March 12, stating that it had finished the first phase of issuance of medium term not (MTN) for 2018 on March 9. The funds will be used in the construction and development of group projects and to supplement working capitals. Shenzhen Heungkong Holding Co., Ltd. announced on the same day that it finally issued 910 million yuan of corporate bonds (the first phase) for 2018 with interest rate at 7.9 percent. It is learnt that the fundraising will be used to repay borrowings from financial institutions after deducting fees on issuance.
“Under the real estate regulation, housing enterprises are increasingly concerning security of capital chain. With rules about financing tightened in domestic China, overseas financing gains growing attention.” Zhang Dawei, chief analyst from Centaline Property, analyzed that real estate enterprises raised funds totaling at 38.86 billion US dollars in 2017, up by 176 percent from 14.06 billion US dollars in 2016.
“Domestic financing of housing enterprises continued to be sluggish in 2017. Based on this trend, total domestic financing of housing firms are reducing mainly because it gets much difficult to raise funds in mainland.” Zhang Dawei said that under this background, the trend will continue in 2018 and more enterprises even start to seek opportunities of raising funds overseas.
The most traditional way for real estate enterprises to raise funds is bank loans, said Sealand Securities’ analyst Jin Yi. But they are less dependent on commercial real estate loans in recent years. The proportion of commercial real estate loans dropped from 32.8 percent at the end of the third quarter of 2011 to 26.0 percent at the end of the third quarter of 2017. “Housing enterprises must get licenses before acquiring commercial real estate loans and such loans are not allowed to purchase lands. Therefore, housing enterprises need to raise funds via other channels at early stage of house development.”
Residential house sales have been curbed since 2017 with strict regulation policies. Industry insiders viewed that housing enterprises face pressure on contra flow. Meanwhile, they will be also confronted with a peak of repaying debts in 2018. Zhang Dawei added that according to real estate regulation in various regions, the pressure on capitals of housing enterprises is expected to continue. Under such situation, other ways like issuing bonds are likely to be restricted. Housing companies may be faced with the biggest pressure on capitals in 2018 over past four years.
Analysts from international real estate services provider CBRE pointed out that data of banks loans and some newly-issued measures in financial market showed that environment for monetary will be more flexible in 2018. The agent predicted that M2 growth will recover from the lowest record set last year to 9 percent-9.5 percent in 2018 so as to maintain economic stability.
But some new rules about funds, trust and asset management projects which were implemented from 2017 will continue to affect financing of real estate developers, and scale of off-balance-sheet financing will be further narrowed. On the whole, large property investment enjoys the favorable monetary situation to continue to be active in 2018 and there will be further more mergers and acquisitions in real estate industry.
Translated by Vanessa Chen
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