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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Fewer homes threatened, containment increases, PG&E rebuilding power lines

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a car parked in a parking lot: Cars burned down along Ono Road on Sunday afternoon, Sept. 27, 2020.


© Hung T. Vu/Special to the Record Searchlight
Cars burned down along Ono Road on Sunday afternoon, Sept. 27, 2020.

With little growth since Thursday night, firefighters were able to get more control lines around the Zogg Fire, the California Department of Forestry and Fire Protection reported Friday.

Only 101 structures are now under threat by the Zogg Fire, down from the 1,538 structures that were in peril at the blaze’s peak.

The fire, which started Sunday afternoon, is 56% contained after growing on Friday night to 56,168 acres — a gain of only 365 acres from Thursday night.

Cal Fire released the following new figures:

  • The number of structures destroyed rose to 170, up from the 153 reported Friday morning. 
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