In the first quarter of this year, the mainland property market was hit by the epidemic, and at the same time, real estate companies issued debt financing had also become a concern. According to data from the China Index Academy, in terms of corporate financing, the overall scale of bond issuance for real estate companies in June improved from the previous month; whilst the overseas debt retuned to its pre-epidemic level. The average interest rate for debt issuance in China was 4.77%, up 0.6 percentage point, reflect ample liquidity in the market. There are twenty real estate companies (accounting for 50% of the total) issued bonds at lower below average interest rates, which included leading property developers such as Vanke, Poly and Gemdale. At the same time, the average interest rate on overseas bonds was 7.57%, rising more than 2% on a monthly basis. Meanwhile, Moody’s Asian Liquidity Stress Index is estimated to be 39.7% in June from 40.7% in five months, reflecting the improvement in the liquidity of real estate companies in China and a slight change in the number of companies assessed for high-yield bonds.
After years of industry development and integration, large domestic real estate companies have grown in size and are able to withstand shocks. Of course, these include the regulatory measures introduced by the government and the COVID-19 crisis. Additionally, real estate companies have gradually diversified their business models, which has also brought a variety of benefits to companies. On top of the income stream from the real estate development projects, many of these companies can derive other income from their leasing properties, as well as from providing property management services, offering a cash flow buffer for real estate companies during the epidemic. It supports the normal operation of enterprises, and enables real estate companies to swiftly get out of the haze of the epidemic. Upon the success in controlling the COVID-19 disease in China, most property developers are expected to gradually restart their land purchase plans. The strength of global monetary policy easings will very much depend on changes in the epidemic and the ability of the economy to recover. Renminbi bonds are getting attractive relative to US dollar bonds, driven by an expected narrowing trend in interest rate differential between the Renminbi denominated bonds and the US dollar denominated bonds, alongside the continued weakness in US dollar. As such, we see the Renminbi bond issuance by mainland property developers increase for the remainder of this year.