M&A Opportunities for Real Estate Enterprises to Increase in 2017

In the face of continuously tightening financing channels and a gradual correction in the sales market, industry analysts believe that in 2017 real estate enterprises will generally face funding pressure brought about by the market downturn, and the opportunities for mergers and acquisitions between enterprises or projects will increase markedly.

As of March 9, a number of real estate companies had announced their sales results for January and February. Judging from the data, the results of most companies still rose year on year. Statistics from the Centaline Property Research Center show that the combined sales results of 16 benchmark real estate companies monitored in January and February were 261.73 billion yuan, up 73% from 151.19 billion yuan in January and February 2016.

“The main reason for the rise in results is that sales were booming throughout 2016, and the sales results enterprises reserved for carryover were reflected in the first two months of this year.” Zhang Dawei, chief analyst at Centaline Property, believes that overall, sales data in most cities in January were actually at a low level.

It is worth noting that Guo Shuqing, chairman of the China Banking Regulatory Commission, recently pointed out that in 2017 the CBRC will resolutely tackle all kinds of financial chaos and give greater prominence to preventing and controlling financial risks. Guo Shuqing said that the real estate market varies greatly from region to region, and the bubbles or risks contained in house price increases in different cities and places are different. Therefore, in terms of financial regulation, banks are expected to proceed from their own actual conditions and manage their funding for the real estate market, including for developers and individual residents, in a steady and prudent manner.

In addition, Wang Zhaoxing, vice chairman of the CBRC, also said that in terms of real estate credit policy, differentiated policies will be adopted to restrict real estate credit demand that involves bubbles and speculation; for some third- and fourth-tier cities with excessive real estate inventory, consideration should be given in credit; and in the process of urbanization, credit support should be given to basic rigid housing demand.

The signal that real estate financing is continuing to tighten is already very clear. A research report recently released by Haitong Securities pointed out that in addition to bank loans and corporate bonds, various channels for real estate enterprises, including equity financing, ABS, trusts and asset management financing, have all tightened, with no signal of improvement in the financing squeeze.

In fact, this sign can also be seen from the volume of real estate bond issuance in recent months. In the fourth quarter of 2016, the volume of real estate bond issuance and net financing was only 30% of that in the third quarter of that year, mainly because of tighter corporate bonds; in February 2017, real estate bonds were in a state of “zero issuance.” It is reported that none of the real estate corporate bonds filed since November 2016 has yet been approved for issuance.

While bond financing has tightened, loans granted by banks to real estate enterprises have also been declining, with the scale of both personal loans and development loans under strict control. Zhang Dawei told the Economic Information Daily that subsequent real estate market credit policy is expected to diverge markedly, with policies in first- and second-tier cities likely to continue to tighten, while policies in third- and fourth-tier cities may be somewhat relaxed. “It will be the norm for banks to tighten loan quotas and slow lending in the future.”

Statistics from the Centaline Property Research Center show that after the Spring Festival in 2017, mortgage rate discounts in places including Beijing, Shanghai, Tianjin, Hangzhou and Nanjing all tightened somewhat. Zhang Dawei said, “The mainstream discount in the market has already risen from the previous 15% off to around 10% off. It is expected that most real estate enterprises will face relatively great market correction pressure in 2017, and enterprises that acquired more land in 2016 in particular may see their risks increase markedly.”

Recently, Huang Qisen, chairman of Tahoe Group, also stated clearly, “This year the real estate market will be generally stable, and a market that undergoes regulation and adjustment will not see drastic ups and downs. However, real estate enterprises will have tighter funds than last year, so the opportunities for mergers and acquisitions of enterprises or projects will also increase accordingly.” Reporter: Gao Wei