Chinese property developers’ first-half financing hit lowest since 2018 amid the sector’s deleveraging

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China’s top 100 property developers raised a total of 609 billion yuan in funding in the first half of this year, sliding 34 per cent from the same period last year and down 29 per cent from the previous six-month period, according to a report from the China Real Estate Information Corporation (CRIC), a real estate consultancy. The figure marks the lowest half-year level since 2018.

The developers’ fundraising declined on both year-on-year and quarter-on-quarter basis in the first quarter the year, hitting the lowest level since the third quarter of 2018, and the decline accelerated in the second quarter, said the CRIC.

In January, the developers raised a combined 180.7 billion yuan, significantly higher than the previous month, due to sufficient loan quota in the beginning of year and homebuilders’ high demand to repay maturing debt in the first half, said the CRIC.

Their average monthly financing in the period of February – June remained around 100 billion yuan, with the figure for May falling below 100 billion yuan, showed the data.

In particular, the developers ranked between Top 31 – 50 saw the steepest drop, with their total financing decreasing 53.5 per cent year over year in the first half to 92.2 billion yuan, ,while the Top 11 – 30 developers saw the smallest decline of 23.48 per cent as they had strongest need for business expansion and remained active in seeking funding, said CRIC.

As to developers’ borrowing costs, average borrowings costs on their new bonds stood at 5.55 per cent, down 0.52 percentage points from the level for the full year of 2020, showed the data. In breakdown, average borrowing costs on their offshore bonds stood at at 6.87 per cent, down 0.96 percentage points from 2020, and 4.34 per cent on onshore bonds, down slightly by 0.1 percentage points from 2020.

Borrowing costs for the Top10 developers including China Vanke and Country Garden in the offshore market fell by 1.66 percentage points, while average costs for Top 31 – 50 developers fell by 0.73 percentage points.

The CRIC also noted that the spread between different developers’ offshore borrowing costs are widening, with costs for some developers falling below 3 per cent while some costs hitting up to 14.5 per cent.

Chinese property developers’ financing has been tightening since the authority introduced the so-called “three red lines” which forced developers to reduce leverage, improve debt coverage and increase liquidity.

In addition, at the end of 2020, the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission imposed limits on banks’ real estate loans curb housing speculation and reduce risks for the financial system.

The regulators capped real estate-related loans that segregates banks into five tiers and subject them to different ceilings based on their loans to developers and home buyers. State-owned banks and joint-stock banks see their property-related loans being limited to 40 per cent and 27.5 per cent of total loans, respectively, while mortgage loans can make up no more than 32.5 per cent and 20 per cent.

Going forward, analysts expect homebuilders’ financing to remain moderate amid tight credit supply to the sector, as the authority’s policy stance is unlikely to change in the short term, said the CRIC.

Chinese developers will see debt repayment pressure ease slightly in the second half of the year, with 350.5 billion yuan of bonds to mature, down 19 per cent from the first half, but remain high compared to previous years, showed the data.