According to a Friday report from Bloomberg News, China is considering easing the “three red lines” regulation in order to boost the struggling real estate market.
The “three red lines” strategy was launched in August 2020 to address the unrestrained borrowing of real estate developers by capping the amount of additional debt they can take on annually.
Beijing may lower borrowing limits, extend the grace period for reaching the policy’s debt targets, and permit some real estate enterprises to increase their leverage. The deadline, which was originally set for June 30, might also be extended by regulators by at least six months, the article added, citing people familiar with the situation.
According to the new suggestion, China will relax debt growth constraints for developers based on how many red lines they satisfy, lowering borrowing limits for businesses that satisfy all three benchmarks, the article said.
A fourth of the GDP in China is made up of the real estate market, which was severely damaged last year when cash-strapped developers were unable to complete apartment buildings, leading some customers to forego mortgages. Many of the biggest developers in the nation have also fallen behind on their payments and are currently embroiled in protracted restructuring negotiations.
Policymakers have announced a flurry of initiatives recently to bolster the industry, including making it simpler for developers to acquire new capital, extending loan payback terms, and providing greater assistance to consumers. Analysts, however, predict that the recovery will be drawn-out and rocky.
The “three red lines” metric required real estate developers to publish more information about their loans and placed limits on the debt-to-cash, debt-to-assets, and debt-to-equity ratios.
