Economic Daily: Don’t misread “real estate de-financialization”

2022-05-04 0 By

On February 19, Economic Daily published a commentary titled “Don’t misread the” Real Estate De-financialization “, saying that “de-financialization” is a correction of the previous excessive financialization, and its ultimate goal is to reduce the operating leverage ratio of real estate enterprises to a reasonable level.In the process of industry deleveraging, the default risk of individual enterprises will inevitably be exposed.In this regard, we should not be in a hurry to make a policy turn, otherwise our previous efforts will be wasted.Recently, the internal speech of a large real estate company was leaked, which triggered a discussion on the “real estate de-financialization” in the market.Some people believe that financial support for the industry will be greatly reduced, which is a misinterpretation of “real estate de-financialization”.It must be pointed out that “de-financialization” is a correction of the previous excessive financialization, and its ultimate purpose is to reduce the operating leverage ratio of real estate enterprises to a reasonable level, optimize the debt structure, promote the real estate to return to residential and people’s livelihood attributes, and avoid causing regional and systemic risks.The problem of “excessive financialization” in the real estate industry is embodied in two aspects.First, real estate development and management excessively rely on financial leverage, with high debt, high leverage and high turnover;Second, real estate enterprises have arranged in the financial sector, investing, holding shares and even holding commercial banks, insurance institutions, trust companies, etc., with excessive industrial capital entering the financial industry.The causes of “excessive financialization” are very complicated, and different causes are mutual causation and spiral cross.First of all, the investment property of real estate once exceeded the residential property, triggering speculation and forming the expectation that the housing price “only rises but never falls”.Affected by this expectation, housing enterprises increase leverage to expand, buyers worry about buying late, buying small, borrowing ahead of time to buy a house, these behaviors further solidify the expectation of rising housing prices, trapped in a vicious circle.Secondly, the profit-seeking behavior of financial institutions deepens the complexity of real estate financing structure.Chaos such as “drawer agreement” and “open stock real debt” once prevailed, and the risk of shadow banking increased, which not only increased the difficulty of regulatory authorities to dismantle, but also weakened the implementation effect of regulatory policies.Again, some housing enterprises lack reasonable financing planning, it is difficult to do “pre-judgment, tracking, after the review”.Individual operators hold the mentality of “make a sum of money and run”, during their tenure of excessive financing, spread the stall, even from the illegal profit, after the resignation, the successor also ignored the old account.As a result, the debt structure of some real estate enterprises is seriously unbalanced, and their financing behavior is increasingly deviating from their own development track. Once they encounter cash flow strain, the risks are easily exposed.Therefore, the core idea to curb the “excessive financialization” of real estate is to adhere to the positioning of “housing rather than speculation” and return to the residential property of real estate.In recent years, the regulatory authorities focus on the supply side, aiming to change the exogenous growth mode of real estate enterprises and reduce the industry debt and risk.On the one hand, we continue to carry out disorderly rectification actions and strictly check the illegal inflow of credit funds into the real estate market.On the other hand, it will continue to improve the prudent management system of real estate finance, clarify the capital monitoring and financing management rules of key real estate enterprises, and establish the “real estate loan concentration management system”, requiring the ratio of the balance of real estate loans of banks and the ratio of the balance of personal housing loans not to exceed the corresponding upper limit.In the process of industry deleveraging, the default risk of individual enterprises will inevitably be exposed.In this regard, we should not be in a hurry to make a policy turn, otherwise our previous efforts will be wasted.To adhere to the positioning of “housing not speculation”, actively and steadily dispose of exposed risks;At the same time, we will keep the growth of real estate loans steady and supply them in an orderly manner, but ensure that the structure of real estate loans is structured in such a way that some loans are limited while others are limited. We will take precise and effective measures to meet the reasonable and rigid financing needs of real estate enterprises and home buyers, and resolutely curb illegal activities.It must be made clear that the overall trend of steady and healthy development of China’s real estate market will not change.Next, we must resolutely implement the decisions and arrangements of the CPC Central Committee, earnestly implement the spirit of the Central Economic Work Conference, adhere to the positioning of “housing rather than speculation”, and fully implement the long-term mechanism of real estate.At the same time, we should strengthen expectation guidance, further improve the accuracy of real estate financial policies, and maintain the continuity, consistency and stability of policies.In addition, we need to explore new development models for the industry, strengthen financial support for the long-term rental market and the construction of low-income housing, and promote a virtuous cycle and healthy development of the real estate industry.