What China’s Three Red Lines Mean for Property Firms
The People’s Bank of China and the Ministry of Housing announced in August that they’d drafted new financing rules for real estate companies, but have said little more. But the media reports and people familiar with the upcoming guidelines have said developers wanting to refinance will be assessed against three red lines, or thresholds:
• There will be a 70% ceiling on liabilities to assets, excluding advance proceeds from projects sold on contract;
• a 100% cap on net debt to equity;
• and they must have a cash to short-term borrowing ratio of at least one.
Developers will be categorized based on how many limits they breach and their debt growth will be capped accordingly. If all three are breached, the company won’t be allowed to increase its debt in the following year, according to a report by 21st Century Business Herald. If it passes all three, it can