China can relax ‘three red lines’ property rules: Bloomberg


Strict lending rules were introduced in 2020 to prevent unbridled borrowing from project developers.

China plans to ease restrictions on borrowing from real estate developers to support the troubled sector by reversing its “three red lines” policy, Bloomberg News reports.

The “three red lines” policy was unveiled in August 2020 to address property developers’ rampant borrowing by limiting the amount of new loans they can take out each year.

Beijing may allow some real estate companies to add more leverage by easing borrowing ceilings and extending the grace period for meeting debt targets set by the policy. Regulators could also extend the deadline by at least six months, which was originally June 30, the report said, citing people familiar with the matter.

Under the new proposal, China will ease limits on debt growth for developers, depending on how many red lines they meet, and loosen borrowing limits for companies that meet all three thresholds, the report said.

China’s real estate sector, which accounts for a quarter of the economy, was hit hard last year as property developers were unable to complete construction of apartments due to financial constraints, leading to a mortgage boycott by some buyers. Some of the country’s largest developers have also defaulted on their debts and are engaged in protracted restructuring negotiations.

In support of the industry, policymakers have announced a host of measures in recent months, including making it easier for developers to raise new funds, extending loan amortizations and increasing help for homebuyers. But analysts expect the recovery to be long and bumpy.

The “three red lines” metric placed limits on debt-to-money, debt-to-assets, and debt-to-equity ratios, and asked property developers to provide more details about their debts.

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