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China real estate companies’ financing fell by 70% in January

According to the monitoring data released by the China Index Research Institute on Feb. 9, the total financing of real estate enterprises in January 2022 was $12 billion, a year-on-year decrease of 70.3% and a 16.6% month-on-month decrease.

The China Index Research Institute said that continuing a downward trend that began in the fourth quarter of the previous year, the overall financing of housing companies declined by 30% in January. The main reasons for the sharp decline in total funding are insufficient investor confidence in the weak solvency and late payment of overseas debts and the trust of many real estate companies.
The financial status of businesses in January is critical for the whole year. It is the busiest season for real estate corporations to issue bonds. Some real estate corporations even finish issuing bonds for the entire year at the start of the year. However, there is no visible evidence of recovery in the industry’s funding at the beginning of this year.

Bloomberg calculations and analyst estimates suggest that the industry will need to work out at least $197 billion to cover maturing bonds, coupons, trust products, and delays in salary payments to millions of migrant workers. The paper said that only a few private real estate and construction companies in China could participate in the domestic interbank bond market. It is unclear how other smaller and distressed firms extract the needed cash. Offshore yields are so high that the dollar bond market is practically closed for refinancing.

According to Shell Research Institute calculations, the entire amount of bonds due by real estate businesses this year is over $157.37 billion, with obligations owing in January, March, April, and July—all above $15.7 billion. The debt financing gap of real estate companies reached $8.97 billion in January, and the scale of real estate firms’ bond financing in January was the lowest for the previous five years.

In January, real estate enterprises issued $48.1 billion of bonds, with domestic bonds dominating. Overseas bonds accounted for 30%, down 24% from the same period in 2021, continuing the overall downturn in overseas bonds.
Domestic debt continues to be the most common type of debt issued by real estate companies.

On Jan. 18, Zheng Junying, co-head of Fitch Ratings Greater China, said at the bank’s credit outlook meeting that contracted sales will drop by 10% to 15% year-on-year, while the average price will drop by 5%. Liquidity constraints and the drop in market confidence exacerbate a decrease in yearly real estate sales. In addition, most Chinese real estate enterprises cannot get capital-market funding, perhaps leading to further defaults.

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