The Causes of the Debt Risk of Real Estate Enterprises

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The debt risk of real estate companies has a lot to do with the real estate industry attributes and high leverage operation mode. Since a large amount of funds are needed to purchase land, demolition and resettlement, and cover construction costs in the early stage of real estate development, the capital chain is regarded as the lifeline of real estate development enterprises. In the period of rapid expansion of the real estate market since 2003, due to the high profit rate of the industry and the rapid return of funds, the real estate industry is prone to “surge phenomenon” in investment, that is, many real estate development investments are like a tide, wave after wave To the real estate industry. At the time of the “rising tide”, every real estate development company has a high expectation of return on the investment choices it makes. The local government provides relevant policy support based on political performance and land transfer fees. Financial institutions are also Under the influence of “behavior”, they are willing to raise funds, and all kinds of housing demand subjects will use their savings for several generations to buy houses.

With the strict control of the central government on the supply and demand ends of the real estate industry since 2017, the market has gradually returned to rationality, and real estate investment has gradually “ebbed.” The overall profit rate of the real estate industry has gradually declined, while development costs such as land costs, labor costs, financial costs, and demolition and resettlement costs have gradually increased, and the debt risks of real estate companies have become increasingly prominent.

In terms of the sources of funds of Chinese real estate development companies, the proportion of indirect financing (mainly including bank loans and trust loans) has been operating at a high level of over 90%, and the proportion of direct financing (mainly including stock financing and bond financing) has been small in recent years. Rebounded, but still hovering at a low level of less than 10%. In indirect financing, the source of loans from domestic financial institutions has consistently ranked first. Compared with the overall proportion of indirect financing in the non-financial industry, the imbalance of the financing structure of real estate development companies is more serious. Indirect financing of real estate development enterprises, especially the high proportion of credit, and excessive reliance on the financing structure of banks and financial institutions, has led to their weak ability to withstand debt risks, and the debt risks of their industries can easily spread through the banking financial institution system. The unreasonable debt maturity prevailing in the real estate industry has further increased the leverage ratio and capital chain risks of real estate companies in the concentrated debt repayment period.

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