Several hundred smaller real estate companies in China have come undone since the start of 2019, as authorities put the squeeze on their access to funds via trusts.
As of 21 July a total of 271 real estate enterprises in China have declared bankruptcy since the start of 2019, according to data from the Chinese judicial system.
Domestic observers say that these companies are all smaller real estate concerns that are less risk resistant, yet have come under mounting pressure as Chinese regulators constrict funding sources.
Primary financing channels for Chinese real estate enterprises include corporate bonds, bank loans, trust loans and private fund raising.
Most small and medium-sized real estate companies are compelled to make recourse to trust loans, however, given that corporate debt and bank loans are more difficult for them to access.
Funding from trusts has come under heavy pressure of late, with the China Banking and Insurance Regulatory Commission (CBIRC) recently convening meetings with certain trust companies and calling for them to contain the scale of their real estate-related operations.
Restrictions on real estate financing continue to increase, with the National Development and Reform Commission (NDRC) issuing a directive on 12 July that places further curbs on overseas bond issuance by real estate enterprises.
The directive restricts offshore bond issuance by Chinese real estate enterprises to the roll over of medium and long-term overseas debt that is scheduled to mature within the next year.
“The NDRC’s restriction on the issuance of overseas bonds by real estate companies will definitely have an impact on Hong Kong’s listed real estate enterprises,” said Chen Jianing (陈嘉宁), a senior researcher with Suning Financial, to Time Weekly.
“Because equity and debt are the two channels for financing by listed companies, the restriction on overseas bond issuance will by necessity cut off one of these channels.
“Irrespective of whether it’s financing by listed real estate enterprises or companies planning to list, this will have a negative impact.”