Major Chinese property developers’ cash dropped for first time in five years, interest-bearing debt grew at slower pace

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Major Chinese property developers’ cash holdings declined in the first half of the year for the first time in five years and their total interest-bearing debts grew at a slower pace during the period, according to data from the China Real Estate Information Corporation, a Chinese property industry consultancy.

The 80 major property developers in the country had 3.2 trillion yuan of cash on hand at the end of the first half of the year, falling by 0.2 per cent from the start of the year, marking the first drop in nearly five years, according to the data.

In breakdown, top-10 developers had 1.27 trillion yuan of cash by the end of June, down 1.48 per cent from the start of the year, while cash holdings of top 11-30 developers and top 50+ increased slightly during the period and in particular, top 11 – 30 developers’ cash holdings increased 2.88 per cent from the begninning of the year.

As Beijing steps up real estate restrictions, the real estate sector has entered a slow-growth phase. The growth of their cash on hand slow from more than 20 per cent in 2017 and 2018 to more than 10 per cent in 2019 and 2020.

The drop in cash came after the “three red lines”, restrictions on banks’ lending to the real estate sector and slowing home sales amid home purchase restrictions, said the report.

Last year, China introduced the ‘three red lines’ deleveraging campaign in August last year to improve the financial health of the real estate sector, capping homebuilders’ debt-to-cash, debt-to-assets and debt-to-equity ratios.

Notably, among the 80 developers, only 50 per cent saw cash at the end of June rise from six months earlier, compared to 81 per cent in 2020 and its share fell by 31 percentage points, showed the data. Among the developers that saw positive growth in cash holdings, only 6 per cent of them saw a growth rate of more than 50 per cent, lower than 25 per cent at the end of 2020.

In addition, the major developers’ interest-bearing debts stood at 7.1 trillion yuan at the end of June, rising by 0.4 per cent from six months earlier, compared to the 5.4 per cent growth for 2020, showed the data.

In breakdown, the developer’s short-term interest-bearing debts stood at 2 trillion yuan at the end of June, down 9.3 per cent from the start of the year, accelerating by 6.5 percentage points from the 2.8 per cent drop in 2020. Their long-term interest-bearing debts stood at 5.1 trillion yuan, rising by 4.8 per cent from the beginning of 2021, picking up by 1.5 percentage points from the growth in 2020.

The growth of interest-bearing debt have been slowing in recent years after hitting a peak in 2017 and in particular after the so-call “three red lines”, many developers have been restricting their own borrowing to meet regulatory requirements, said the CRIC.

The housing market has been in a cooling trend since the start of the third quarter, with home sales by value falling by nearly 20 per cent in in August from a year earlier, and the second round of concentrated land auctions this year in several major cities have shown cooling signs, according to a note for China International Capital Corporation.

Official Data showed that Chinese property developers’ land acquisition totaled 107.33 million square meters in the first eight months of the year, down 10.2 per cent from a year earlier and the value of the land purchases fell 6.2 per cent to 664.7 billion yuan. New property construction starts fell 3.2 per cent year over year to 1.36 billion square meters.

Home sales by floor space in August fell 15.6 per cent year over year and sales by value slid 18.7 per cent, official data showed.