1. Policy Background
In recent years, due to the impact of the domestic economic environment and the decline of the real estate industry cycle, the real estate market has gradually declined. Since the People's Bank of China put forward the "three arrows" in 2018, the People's Bank of China, together with relevant departments, has adopted the "three arrows" policy combination from the three main financing channels of bonds, credit and equity to support private enterprises to broaden their financing channels. Since
2022, the central government has repeatedly released stabilization signals to stabilize the real estate market. Since November 2022, the "three arrows" of the central policy have landed one after another. In less than a month, the support policies in the three areas of credit, bonds and equity have emerged frequently, aiming at ensuring the stability and security of the supply side of real estate and providing an important guarantee for the healthy development of the industry. Since December, the stable real estate policy at the local level has been followed up and implemented, involving Nanjing, Wuhan, Xiamen, Nantong, Foshan, Dongguan, Zhengzhou, Chongqing and other cities by relaxing price limits, sales restrictions, loan restrictions and purchase restrictions.
2. Real estate "three arrows" policy
(1) The first arrow: credit
China's financial system is still dominated by indirect finance, and bank credit is one of the most important financing channels for all enterprises. For real estate enterprises, because the overall leverage ratio of the industry is high, and the development of real estate needs a long time to withdraw funds, so the credit financing of real estate also needs to be focused on. In November
2022, real estate sales and investment weakened, and real estate support increased. In October, the monthly growth rate of commercial residential sales weakened again. In November, the area of commercial housing transactions in 30 cities was basically the same as that in October, and the impact of the national epidemic on residential sales continued. Subsequently, policies began to be introduced intensively, and support for the real estate industry was further strengthened.
In order to strengthen the credit support for the real estate industry, on November 21, 2022, the People's Bank of China and the Banking and Insurance Regulatory Commission held a national symposium on the credit work of commercial banks, and put forward the requirements of "stabilizing the development loans of real estate enterprises". At the same time, in November, the Central Bank and the Banking and Insurance Regulatory Commission officially issued a new policy of "16 Articles" on financial support for the steady and healthy development of the real estate industry, namely "Notice on Doing a Good Job in the Current Financial Support for the Steady and Healthy Development of the Real Estate Market", which contains 16 articles, including development loans, trust loans, mergers and acquisitions loans, guaranteed delivery of buildings, housing enterprises relief, loan extension and many other areas. It further emphasizes the support of financial institutions to real estate enterprises and the loosening of some constraints on financial institutions, which highlights the willingness of financial regulatory authorities to protect the main body of real estate. Since the marginal adjustment of the real estate policy at the end of September 2021, this policy has been the most vigorous and specific. First, financial policy supports a wide range of objects. Second, there are many financing channels supported by financial policies. Third, there are many financial policy tools. Fourth, the implementation of financial policies has been further optimized. Specifically, from the perspective of financial policy support, it covers the financing needs of the supply side (real estate enterprises and construction enterprises) and the demand side (residents). Among them, on the supply side, it is required to stabilize the lending of real estate development and "treat all kinds of state-owned and private real estate enterprises equally"; financial institutions should reasonably distinguish the risks of project subsidiaries and group holding companies; on the premise of ensuring the safety of creditor's rights and the closed operation of funds, it should meet the reasonable financing needs of real estate projects in accordance with the principle of marketization. In addition, on the demand side, it is mentioned that we should support the reasonable demand for individual housing loans, support local governments to implement differentiated housing credit policies on the basis of national policies, rationally determine the down payment ratio of local individual housing loans and the lower limit of loan interest rate policies, and support rigid and improved housing demand. On November 8,
2022, in order to implement a package of policies and measures to stabilize the economy, adhere to the "two unshakable" and support the healthy development of private enterprises, under the support and guidance of the People's Bank of China, The Traders Association continues to promote and expand the private enterprise bond financing support tool (the "second arrow") to support private enterprises, including real estate enterprises, to issue bonds for financing. The "Second Arrow" is financed by the People's Bank of China's re-lending, and professional institutions are entrusted to support private enterprises in issuing bonds and financing by guaranteeing credit enhancement, creating credit risk mitigation certificates and purchasing bonds directly in accordance with the principles of marketization and legalization. It is expected to support about 250 billion yuan of private enterprise bond financing, which can be further expanded in the future. After the introduction of the
policy, the debt landing as soon as possible is expected to form a strong signal significance, so the first batch of housing enterprises that have obtained credit lines are expected to form a physical workload in the near future. On the one hand, the establishment of a firewall between the relatively healthy housing enterprises and the housing enterprises that have been out of danger will improve the market's expectations for private housing enterprises; On the other hand, the demonstration effect formed after the landing of debt is expected to guide market-oriented institutions to improve the risk preference and financing atmosphere of private housing enterprises, thus alleviating the credit contraction of private housing enterprises and promoting the recovery of financing of private housing enterprises. At the same time, in addition to the demonstration role, the promotion of the "second arrow" will indeed bring a certain amount of bond issuance to some housing enterprises which are more difficult to issue bonds, especially after the first stage of non-market-oriented creation and issuance, entering a relatively market-oriented stage such as joint creation, some of the waist housing enterprises which were relatively difficult to issue bonds before are expected to benefit.
(III) The Third Arrow: Equity
On November 28, 2022, a spokesman for the China Securities Regulatory Commission (CSRC) answered a reporter's question on the capital market's support for the steady and healthy development of the real estate market, saying that the refinancing of listed real estate enterprises and listed companies involved in real estate should be resumed. Listed real estate enterprises are allowed to refinance in a non-public way, and the funds raised are guided to be used for policy-supported real estate business, including real estate projects related to "guaranteeing the delivery of buildings and people's livelihood", affordable housing, shantytown reconstruction or old city reconstruction, demolition and resettlement housing construction, as well as supplementary liquidity and debt repayment that meet the requirements of the refinancing policy of listed companies. Other housing-related listed companies are allowed to refinance, and refinancing is required to raise funds to invest in the main business.
Equity financing loosening refers to allowing real estate companies to go public for financing, which has been suspended for 12 years. The adjustment of equity financing means that the capital market can provide a platform for mergers and acquisitions financing for real estate enterprises, and help private real estate enterprises which are on the verge of bankruptcy and hope to launch mergers and acquisitions through equity replacement, so as to improve the anti-risk ability of the real estate market and accelerate the integration of the real estate industry. At this time, the relaxation of equity financing is introduced to solve the problem of the difficulty of the first and second arrows landing. In the downward cycle of real estate, the rate of decline in asset valuation is much higher than that of debt resolution. Therefore, from the perspective of debt ratio and other evaluation indicators, it is not only difficult to decline, but may even continue to rise. The further deterioration of the structure of assets and liabilities is not conducive to the implementation of the first and second arrows of credit and bonds. Even if the financing channels are opened, the actual landing may be more difficult. Therefore, the third arrow starts with rights and interests, which just makes up for the difficulties of the first and second arrows. By making corresponding equity disposal and reducing liabilities, it is more helpful to solve the landing of the first and second arrows.
3. Risk analysis
of the real estate industry At present, the real estate enterprises with the characteristics of "high leverage and high turnover" in the early stage and the real estate enterprises with high liquidity pressure have been exposed one after another under the extreme impact of the short-term industry, while the liquidity risk has spread to the mixed real estate enterprises, and the industry liquidation is still continuing. Since the fourth quarter of 2022, the favorable policies on the financing side have been released continuously, the financing function of private enterprises that have not yet been out of danger may be gradually restored, and the short-term liquidity has been improved, but the industry has not yet come out of the downward cycle, and under the background of industry liquidation and downward, most of the risks of private housing enterprises have been exposed; Due to the capital-intensive characteristics of real estate enterprises, some state-owned real estate enterprises lacking core competitiveness and inefficient operation are limited by the limited rescue capacity of local governments, unable to obtain sufficient resources, and will also face the risk of integration.
From the perspective of financing channels, despite the current "three arrows" on the financing side, the continuing downturn on the demand side may inhibit the substantial improvement of investors'risk preference for the industry, and the sustainability of the refinancing capacity of housing enterprises remains to be observed.
In addition, from the perspective of projects, project mergers and acquisitions generally face potential risks such as implicit debt and legal disputes. At present, market participants are still cautious about mergers and acquisitions. It is difficult for real estate enterprises to revitalize and dispose of their assets, and the general disposal progress is slower than expected.
For the real estate industry, as the policy is more favorable, the degree of support for the industry can be improved to a certain extent. At the same time, banks can adapt to the development of the policy and support relatively stable real estate enterprises with better projects. For example, after the completion of the project, real estate enterprises that can generate greater demand and obtain more stable cash return are expected. At the same time, state-owned enterprises and leading housing enterprises with better credit qualifications and resource reserves are expected to take the lead in benefiting from the recovery of the industry. Therefore, it is suggested that priority should be given to the real estate enterprises of central and state-owned enterprises with better operation and stable capital, as well as the leading enterprises with high visibility and strong land acquisition ability in the industry.
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