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

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What China’s Three Red Lines Mean for Property Firms: QuickTake

china homes real estate property

Photographer: Qilai Shen/Bloomberg

The danger lurking in China’s debt-laden real estate sector was never so clear as in late September, when word of a possible cash crunch at China Evergrande Group, the world’s most indebted property developer, sent investors running for the exits. With seven more of the 10 most-indebted developers also based in China, policymakers in Beijing have drafted what state-run media are calling “three red lines” — metrics regarding debt that developers will have to meet if they want to borrow more. The new approach promises to be a game changer for a sector that accounts for about 29% of economic output.

1. How will it work?

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

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Bay Area office sublease space soars, firms retrench

SAN JOSE — The amount of office space available for sublease space has risen in the Bay Area — and has more than tripled in San -Francisco — an indication that work-from-home protocols amid the coronavirus may have prodded companies to rethink space needs.

Santa Clara County, the East Bay, and San Mateo County have all shown significant increases in sublease space, but San Francisco has earned the dubious distinction of suffering the largest increase by far in the Bay Area for the amount of space available for sublease, according to a new report from Cushman & Wakefield, a commercial real estate firm.

Significant increases in available sublease office space are a nationwide phenomenon but the difficulties are especially acute in the Bay Area, the Cushman & Wakefield report shows.

“The increase in sublease vacancy has been widespread, though one region has been hit the hardest: the San Francisco Bay

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