Recently, according to network sources, dozens of key real estate enterprises included in the “three red lines” pilot have been required by the regulatory authorities that the amount of land purchased shall not exceed 40% of the annual sales. This proportion limit includes not only the land acquisition of real estate enterprises in the open market, but also the expenditure on land acquisition through acquisition and merger.
It is understood that as early as August 23, 2020, the central bank and the Ministry of housing and urban rural development jointly held a symposium on real estate enterprises, which has disclosed the “two auxiliary red lines”:
1) The land acquisition sales ratio shall not exceed 40%;
2) Whether the operating cash flow in recent three years has been continuously negative.
It is mentioned that if the land acquisition amount accounts for > 40%, it will be penetrated layer by layer to explain the source of land purchase funds, relevant bank account information, payment vouchers, etc.
Ding Zuyu of Kerui Research Center said that in the short term, the above policies had a great impact on land acquisition positive enterprises in the first half of the year, especially some state-owned enterprises, central enterprises and leading real estate enterprises. However, in the long run, the mandatory matching between the land storage value of real estate enterprises and sales performance is conducive to the tilt of high-quality land resources to the head real estate enterprises and strengthen the new pattern of the real estate industry.
Real estate enterprises welcome the “three patches”
Recently, according to a securities dealer, since 2021, in addition to the “three red lines” supervision of pilot real estate enterprises, the regulatory authorities have also focused on another three dimensions – commercial ticket data of real estate enterprises; Cumulative equity land acquisition amount / cumulative equity sales amount of the current year < 40%; And the net cash flow from operating activities in the past three years cannot be continuously negative.
Patch 1: commercial ticket defaults occur frequently, and commercial ticket is brought into supervision
On June 30, 2021, the central bank has started the pilot work of “bringing commercial tickets into the debt supervision of real estate enterprises”, requiring real estate enterprises to report commercial ticket data every month. So why should commercial tickets be included in the “three red lines” supervision?
Under the dual supervision of “three red lines” and “two red lines” of bank loans, the financing scale of bonds and loans of real estate enterprises has shrunk significantly, and the capital pressure of real estate enterprises is even greater.
As a financing channel not regulated by the central bank and not included in the category of interest bearing liabilities, commercial tickets are not limited by bank credit lines and regulatory policies. Therefore, many real estate enterprises increase the use scale of commercial tickets under the financing pressure of “three red lines”, so as to reduce the net debt ratio and improve the cash short debt ratio.
In 2020, under the pressure of “three red lines”, commercial paper as a financing tool outside supervision will grow rapidly. According to the data of Shanghai Stock Exchange, the amount of commercial bills issued in China in 2020 was 3.62 trillion yuan, a year-on-year increase of 19.77%. Among the top 19 real estate enterprises, the overall commercial bill acceptance balance reached 335.574 billion, an increase of 36.59% over 2019.
According to the statistics of fengcaixun think tank, by the end of 2020, the amount of notes payable of 20 representative real estate enterprises was 414.86 billion yuan, of which the scale of notes payable of China Resources Land, Greenland holdings and rongchuang China was between 20-30 billion yuan, and the scale of notes payable of country garden, Zhonghai, Shimao, poly and Zhongnan Construction was between 10-20 billion yuan.
Reprint indicated source：Spark Global Limited information