China looks to reel in heavily indebted real estate sector

Government is forbidding private equity funds from investing in resi development

National Weekend Edition /
Aug.August 15, 2021 02:00 PM
China looks to reel in heavily indebted real estate sector

(iStock)

China is cutting off another source of money from residential real estate developers: private equity funds.

The government-endorsed Asset Management Association of China informed pe firms it would no longer accept registrations to set up such funds for real estate investment, according to Bloomberg.

It’s the latest step in the government’s effort to address ballooning debt in the residential development sector and stave off a housing bubble.

Earlier this year, the People’s Bank of China set caps on loans to developers and limited their mortgage lending.

Some of China’s largest developers are swimming in debt — Evergrande Group is the world’s most indebted developer with around $300 billion in liabilities. The company has billions of dollars in bonds maturing in the next year or so and its stock price has plummeted in the last year.

Despite wider concern over the stability of the sector, builders still find buyers for their bonds. Chinese real estate firms have sold $20.3 billion worth of bonds so far this year, the second highest total since 2017.

Private equity funds are a key source of money for developers in China and they only became more reliant on private equity dollars as the government restricted other sources of funding.

As of last year, investment into real estate-focused private equity funds totaled around $130 billion, or 13.5 percent of the sector as a whole.

[Bloomberg] — Dennis Lynch 





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