"Supply Side Reform" Of Real Estate Financing Starts And "Deleveraging" Of Real Estate Market Starts In An All-Round Way

On the last day of 2020, a document in the financial field was released, which announced that the real estate industry has officially entered a new era.

On December 31, the central bank and the China Banking and Insurance Regulatory Commission jointly issued the notice on the establishment of a management system for real estate loan concentration of banking financial institutions (hereinafter referred to as the "notice") to manage the real estate loan concentration of all corporate banks in China.

Specifically, corporate banks are divided into five grades, and the proportion of real estate loans and personal housing loans is set at the upper limit according to the different positions of each bank. Among them, the former does not exceed 40%, and the latter does not exceed 32.5%.

The notice shall come into effect on January 1, 2021.

This document is considered as part of the "Prudential Management System of real estate finance". Although the quota ratio set is not harsh and the regulatory authorities have given a certain transitional period, the signal significance of the policy can not be ignored.

Over the past few years, real estate regulatory policies have imposed almost severe restrictions on buyers. The introduction of a series of "restriction" policies, such as purchase restriction, loan restriction and sales restriction, not only protects the demand, but also makes it more and more difficult for buyers to "leverage". In August 2020, the "three red lines" policy was put forward to quantify the financing demand from the perspective of real estate enterprises. The introduction of the centralized management system of "housing related loans" is to tighten the supply side of funds. It is not only an integral part of the supply side structural reform, but also an important part of the long-term mechanism.

The proportion of real estate loans assessed by five grades

According to the notice, corporate banks will be divided into five categories. Specifically: 6 major banks + National Development Bank (CDB), 12 joint-stock banks + Agricultural Development Bank + Export Import Bank + Bank of Beijing, Shanghai and Jiangsu are the second tier, private banks + urban commercial banks excluding Beijing, Shanghai and Jiangsu + agricultural cooperative medical institutions in large and medium-sized cities and urban areas are the third tier, county-level rural cooperative organizations are the fourth tier, and rural banks are the fifth tier. Rural cooperative organizations include rural commercial banks, rural cooperative banks and rural credit cooperatives.

In terms of indicators, the upper limit of the proportion of the first tier of bank real estate loans and personal housing loans is 40% and 32.5% respectively; the second tier is 27.5% and 20%; the third tier is 22.5% and 17.5%; the fourth tier is 17.5% and 12.5%; the fifth tier is 12.5% and 7.5%.

According to the regulator, the above classification is determined according to the asset scale and organization type of banking financial institutions, while the setting of management requirements comprehensively considers the bank type, the current situation and future space of stock real estate loan business.

It is worth mentioning that in order to support the vigorous development of the housing rental market, loans related to housing leasing are not included in the calculation of the proportion of real estate loans.

The notice will be implemented from January 1, 2021, taking the data at the end of December 2020 as the boundary, and gives two-year and four-year transition periods for different excess ratios. At the same time, it is clear that all localities can appropriately adjust the management requirements of real estate loan concentration within the range of 2.5 percentage points according to the characteristics of local economic and financial development level.

In addition, in order to support the implementation of the new regulation, the real estate loans returned to the table during the transition period of the new regulation (to the end of 2021) are not included in the statistics.

Bank is one of the most important sources of funds for real estate enterprises. Some financial institutions told the reporter of the 21st century economic report that, taking into account the development loans, mortgage loans, non-standard financing, credit loans and other channels, the amount of loans obtained by real estate enterprises from banks every year is about 5 trillion, accounting for about 30% of their capital sources. Therefore, the quota management of banking financial institutions will soon attract the attention of the industry.

However, most people in the industry believe that this regulation is not harsh only from the perspective of quota.

Xu Xiaole, chief analyst of Shell Research Institute, told the 21st century economic report that as of the end of the third quarter of 2020, the commercial real estate loan balance accounted for 28.8% of all loan balances of financial institutions, and the personal housing loan balance accounted for 19.8% of all loan balances of financial institutions, with the average level lower than the management target limit. The current management ratio requirement basically conforms to the situation in 2020, which means that the total amount of quota put into the market in 2021 will not change significantly.

At the same time, the regulatory authorities set the transition period according to the actual situation of the bank at the end of the year. The higher the management requirements are, the longer the transition period will be, so that the banks and loan entities have enough time to adjust smoothly and avoid excessive changes. Therefore, Xu Xiaole believes that "the program will not have a big impact on the short-term market."

The relevant heads of the two ministries and commissions also made this point clear. It is reported that since 2019, the central bank and the China Banking and Insurance Regulatory Commission have carried out extensive research on the management system of real estate loan concentration and fully communicated with financial institutions, "at present, most of the banking financial institutions meet the management requirements."

However, the role of the new regulations in plugging loopholes should not be ignored. According to the shellfish research institute, the new regulations implement differentiated management requirements, and the grading is based on the scale and risk prevention and control ability. It means that the space for "small banks" to expand this part of business through more "flexible" personal housing loan policies will be limited, and the management of interest rate and qualification of personal housing loan will be more strict.

The road to deleveraging

Over the past few years, real estate regulatory policies have imposed almost severe restrictions on buyers. The introduction of a series of "restriction" policies, such as purchase restriction, loan restriction and sales restriction, not only protects the demand, but also makes it more and more difficult for buyers to "leverage".

Under the framework of supply side structural reform, from 2020, the process of "deleveraging" in the real estate market has gradually extended to the financing link of real estate enterprises.

On August 20, 2020, the Ministry of housing and urban rural development and the people's Bank of China held a forum on key real estate enterprises in Beijing, proposing for the first time to implement the prudent management system of real estate finance and enhance the marketization, regularization and transparency of real estate enterprise financing. The meeting also proposed that the "three red lines" should be taken as the principle to manage the financing of real estate enterprises.

The so-called "three red lines" refer to the three indicators set by real estate enterprises, such as the asset liability ratio after excluding advance collection is greater than 70%; the net debt ratio is greater than 100%; the cash short debt ratio is less than one time. According to the different conditions of the touch line, the enterprise is divided into four grades, namely "red, orange, yellow and green", and the growth rate of interest bearing debt scale is quantitatively managed.

It is reported that the "three red lines" have had a substantial impact on the real estate industry. Recently, real estate enterprises have made substantial adjustments in terms of sales return, land sales ratio and bond issuance scale growth, and some enterprises have also set specific downgrading periods.

According to Xu Xiaole, the "three red lines" are the management at the demand side of funds, and the centralized management system of "involving housing loans" is tightening at the supply side of funds.

He also believes that centralized management of "housing related loans" is not only a part of the "prudent management system of real estate finance", but also an important part of the long-term mechanism of real estate. In the future, the policy, together with the "three red lines", will become the normal regulation of the property market.

Most respondents pointed out that with the overall tightening of the management on the capital supply side, the "deleveraging" action in the real estate sector will also be fully launched.

Xu Xiaole pointed out that in recent years, the regulation and control of the real estate market has mainly been carried out in the direction of "deleveraging". The main purpose is to reduce and prevent the financial risks of real estate and promote the balanced development of real estate, finance and the real economy. He said that in the past period of time, the proportion of real estate involved in financial credit was relatively high, which not only increased the leverage level of enterprises and residents, but also squeezed out social credit resources, which was not conducive to the construction of a large domestic circulation.

A person from a real estate enterprise in Beijing told the reporter of the 21st century economic report that the real estate industry will enter a new stage. After the demographic dividend and land dividend gradually subside, the financial dividend is also disappearing. In the future, the real estate market will bid farewell to the high growth under the dividend and turn to a stable development stage.