Since 2008, Chinese developers have never seemed to value cash flow as much as they do now.

In an environment where macro liquidity is relatively loose, the focus of real estate regulation this year has shifted to the financing side. From the promulgation of Document No. 23, the tightening of real estate trusts, restrictions on overseas bond issuance, and special bank inspections, real estate financing has been continuously tightened, and bank credit, trusts, and domestic and overseas financing channels have been comprehensively tightened.

Recovering funds through sales, reducing or even suspending land acquisition, and keeping the "live water" of its own capital pool available and sufficient have become the most important things for developers at the moment.

On August 14, real estate development investment and sales announced by the National Bureau of Statistics showed that in July alone, real estate companies had 1,483.4 billion yuan in funds in place, a year-on-year increase of 5.8%, and the growth rate was almost the same as in June.

21st Century Business Herald reporter dismantled the sources of funds and found that despite the obvious year-on-year decline in domestic loans and self-raised funds, the important factor that still supports the increase in funds in place for real estate development is the substantial increase in sales returns.

In August, many real estate companies such as R&F and KWG publicly stated their stance, emphasizing the acceleration of sales collection, highlighting the urgency of reserving cash for the winter.

Many brokerages predict that real estate financing will continue to be tight in the second half of the year, the land market may cool down, and operating cash flow will be the key to the survival of real estate companies.

Since 2008, Chinese developers have never seemed to value cash flow as much as they do now. - Photo by Song Wenhui

Funds are tight

Data from the National Bureau of Statistics show that from January to July, real estate companies had 9.98 trillion yuan in funds, a growth rate that slowed down by 0.2% from January to June.

Looking at July as a single month, the growth rate of funds in place for real estate companies only increased slightly by 0.1% compared with June.

CITIC Securities data shows that the total financing of real estate companies in July was 115.9 billion yuan, a year-on-year increase of 96%, and a significant increase of 91% month-on-month. However, due to the increased demand for new loans and repayment of old loans, financing is mainly due to the wave of debt repayments faced by real estate companies, and very little funds are available for development.

Among them, domestic development loans fell by 6.0% month-on-month, and personal mortgage loans fell by 0.1% month-on-month.

Compared with previous months, personal loans have slowed down significantly. Since July, mortgage interest rates have been raised in many places and the lending speed has been slowed down. According to a report by Rong360, the average interest rate for first-time home loans nationwide in July was 5.44%, equivalent to 1.11 times the benchmark interest rate.

Take Shenzhen as an example. In July, among the mortgage interest rates of 26 bank branches in Shenzhen, the mainstream loan interest rates for first homes increased by 5% from the benchmark, and the mainstream loan rates for second homes increased by 10% from the benchmark.

In addition, affected by the overall tightening of financing channels and regulatory upgrades, self-raised funds by real estate companies have declined significantly, becoming the only indicator that has declined year-on-year and month-on-month, falling by 7.4% and 13.8% respectively.

The hot real estate trust industry in the first half of the year has cooled down significantly. Data from Yongyi Trust Network shows that real estate information in JulyThe number of trusts established was 462, and funds raised were 76.2 billion yuan, down 30% from the previous month.

CITIC Securities analyst Jiang Yuhui pointed out that in the future, the China Banking and Insurance Regulatory Commission will regard warnings and guidance for trust companies as a normal work. The tightening of real estate trust policies will be more obviously reflected in the data in the second half of the year, and the growth rate is expected to continue to decline in the future.

Among the funds in place, the only item with an increase in growth rate was deposits and advance receipts, which increased by 12.8% year-on-year and 11.6% month-on-month.

He Miannan, an analyst at Everbright Securities, believes that in July, domestic loans and self-raised funds, the sources of funds for real estate companies, have slowed down significantly year-on-year in a single month; due to the rebound in sales and stronger repayments, the overall funds in place are still slightly higher than last year, but it is expected that subsequent sales repayments will be difficult to maintain at the current level, and the industry's funding pressure will gradually increase.

The overall tightening of financing channels has become apparent, and the pressure on funds has led to a substantial cooling of the land market.

Data from the National Bureau of Statistics show that in July, the national land purchase area and land transaction price fell by 22.5% and 15.8% year-on-year respectively compared with June. Land transaction premium rates in hundreds of cities fell across the board, with first-tier, second-tier, and third-tier cities falling by 19.3%, 5.2%, and 7.8% respectively month-on-month.

Yan Yuejin, Research Director of the Think Tank Center of E-House Real Estate Research Institute, believes that further tightening of the overall financing environment will inevitably lead to new pressure on the funds of real estate companies. Real estate companies will encounter new problems in the process of acquiring land and project development, which will lead to a vicious cycle in the capital chain.

Savills analyst Xie Fangyuan predicts that more opportunities will emerge in the second-hand land market. Some developers, under the pressure of capital turnover, began to seek equity cooperation or directly transfer the land they held. There may be room for a decline in land prices. Developers and investors with capital may wish to wait patiently and wait for opportunities to acquire land at a lower cost.

Cash is King

As early as 2014, Vanke emphasized that "sales without repayment are not real sales" and elevated the importance of repayment and repayment rate to the top. This year, real estate companies generally began to emphasize this indicator.

For Poly Development, despite facing relatively small financing pressure, mid-year report data shows that in the first half of 2019, Poly raised a total of 216.8 billion yuan in funds through sales, and the recovery rate increased by 8 percentage points from the same period last year to 86%, further enhancing its ability to resist risks.

At the mid-year performance meeting of Xuhui Holdings on August 13, its 95% return rate was also particularly eye-catching. The financial report shows that in the first half of 2019, CIFI Holdings’ repayment rate increased by 8 percentage points year-on-year to 95%.

In this regard, Lin Feng, president of CIFI Holdings, said that the blood-generating ability of real estate companies is more important than the financing ability. To this end, a special repayment team has been set up within the group, and KPI assessments in various locations also look at repayments, not just sales.

In addition, Sunshine City is also one of the real estate companies that values ​​repayment and cash. The financial report shows that in the first half of 2019, Sunshine City’s sales collection was 72.5 billion yuan, with an average collection rate of 80.5%, which was an increase from the end of 2018.

Statistical data from the research report of Huatai Securities shows that from August to December 2019, the total maturity amount of real estate bonds reached 210.6 billion yuan. Among them, the single-month maturity amounts of real estate bonds from August to October were larger, with monthly totals of 46.9 billion yuan, 50.2 billion yuan, and 55.9 billion yuan respectively. Real estate companies will enter the peak period of debt repayment in the second half of the year.

For some real estate companies that are under great pressure to repay debts and have tight capital chains, "promoting sales and collecting money" will be the wisest approach for these real estate companies in the second half of the year.

R&F Properties, whose net debt ratio has been rising year after year, was the first to make a statement.

An internal document of R&F Real Estate pointed out that in principle, land acquisition will be suspended in the second half of the year. In the case of special circumstances such as high-quality land, the project will be submitted to the group chairman for approval separately; and the key work in the second half of the year will be carried out around "promoting sales and collecting money" to pursue maximizing project returns on the basis of ensuring sales.

In addition, Seazen Holdings, in order to ease financing pressure, is also accelerating repayment. On July 22, Seazen Holdings made it clear for the first time that it would sell 40 projects. On July 24, 10 project companies of Seazen Holdings signed relevant equity and creditor's rights transfer agreements with the counterparties, and the transaction consideration was approximately 4.15 billion yuan.

Founder Securities pointed out that in view of the current tightening of financing channels in the real estate industry, real estate companies have increased their emphasis on endogenous cash flow, and developers have paid more attention to the return of sales funds and struck a good balance between land acquisition and cash flow.

Huatai Securities research report pointed out that self-owned funds are the basic guarantee for corporate debt repayment. Improving endogenous hematopoietic capacity and accelerating sales collection are the keys to debt rollover, especially for real estate companies with poor financing capabilities.

Yan Yuejin, Research Director of the Think Tank Center of E-House Research Institute, said that the focus on repayment shows that some real estate companies have relatively high capital requirements. Under the current triple pressure of capital pressure, inventory pressure and policy pressure, real estate companies must change their sales strategies and be guided by the capital collection rate. Through price reduction promotions and price-for-volume sales and pricing strategies, to cope with the financial pressure caused by the tightening of financing channels in the second half of the year.

Wu Jianbin, executive vice president of Sunshine City, said that at this stage, if real estate companies want to overcome the current difficulties, they must grasp the concept of "cash is king". They can optimize cash flow from two aspects: first, not to buy land and withdraw from land that has not yet been confirmed; second, to control the progress of projects that have been started.