274 Chinese Developers Have Gone Bankrupt in 2019

In China, 274 out of 97,000 registered developers at the end of 2018 have gone bust this year.

iFeng: 超200家房企破产 系楼市精细化大势所趋
Sogou: The bankruptcy of more than 200 housing enterprises is the trend of refinement of the real estate market
The survival of the fittest really pushes China's real estate market into an era of value growth dominated by quality.

China's top real estate companies have the largest revenue in the world. According to the Fortune 500 recently released, the five real estate companies on the list (Evergrande, Country Garden, Greenland, Poly and Vanke) are all from China. In addition, according to the statistics of the national industrial and commercial bureau in 2018, the number of registered real estate developers in China reached 97,000. However, at the same time, data show that 274 real estate enterprises nationwide issued bankruptcy announcements as of July 24, 2019, of which 3 were on July 24 alone.

More than 200 housing enterprises have left the market. According to statistics, most of them are small and medium-sized enterprises. First of all, this is due to a major change in the policy environment. Since the central government established the policy of "no speculation in housing", real estate regulation has lasted longer and has been more intensive than in previous rounds. The entry threshold has been raised in all aspects such as the qualification for purchasing a house and the interest rate on loans for purchasing a house. This has created a squeezing effect on the previous demand dominated by some investments. The control on the demand side has changed the relationship between supply and demand in the real estate market, and a large number of home buyers have also entered the wait-and-see period. For housing enterprises, this means that the sales cycle is prolonged, the pressure of capital chain test is increased, and the small and medium-sized housing enterprises with weak capital pressure resistance are undoubtedly facing severe tests.

At the same time, due to the impact of soaring housing prices in the past few years, both the primary and secondary markets have a tendency to overheat. High land prices in some areas have led to repeated record-breaking land auction prices. At the same time, a high turnover model has been adopted to maximize profits. However, as the real estate policy and the demand for house purchase are getting colder, developers are facing challenges in this development inertia and the inventory of land and buildings is increasing. Sales are blocked, which makes it more difficult for small and medium-sized housing enterprises to collect funds, further exacerbating the shortage of funds.

In addition, the debt pressure brought by developers' high land prices has also become an important reason for some housing enterprises to withdraw. However, before this, small and medium-sized housing enterprises had more financing through trust, bonds and other channels under the condition of limited traditional financing and credit channels. Recently, the China Banking Regulatory Commission has regulated the relevant businesses of banks, trusts and other institutions in the real estate industry. The small and medium-sized housing enterprises are the ones most affected by this.

More than 200 housing enterprises left the market as a result of the triple changes in policy, market and industry. At present, from the overall base, the proportion of more than 200 housing enterprises is still small, but with the deepening of regulation, more housing enterprises, especially small and medium-sized housing enterprises, may face the fate of being eliminated by the industry in the future.

In fact, this is also the beginning of the increase in the concentration of the real estate industry, which is conducive to the long-term development of the market. In the past 30 years or so, China's real estate market has enjoyed three dividends of the times, namely, population migration, urbanization and rapid economic development, thus achieving rapid growth. However, at the same time, there are also a series of problems such as the uneven quality of enterprises and practitioners, the low quality of housing development brought about by extensive management, and the unfinished buildings.

The market clearing of housing enterprises that do not have comprehensive development and operation capabilities is more in line with the future trend of China's real estate market towards fine-grained and large-scale operation. It can also enable the real estate industry to realize the survival of the fittest through reshuffling, stop repeating the previous relatively chaotic and disorderly situation, and truly promote China's real estate market to enter an era of value growth dominated by quality.

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