Tough stance on speculation is here to stay

China will maintain its tough stance on regulating speculative behavior in the real estate sector, and there will be no moves taken to expand the financing channels for real estate enterprises, according to the nation's top economic regulator.

"The government has been strictly implementing regulation of the real estate sector, and this is also the case for corporate bond financing approvals. The latest guideline will encourage financing in a number of limited areas such as the renovation of shanty towns, affordable housing projects and rental housing, according to a senior official with the fiscal department of the National Development and Reform Commission who declined to be identified.

"The new rules, which will streamline the corporate debt issuance approval procedure for qualified companies, do not apply to commercial real estate projects," the official added.

The latest remarks dispel earlier rumors that the government plans to relax constraints to the real estate sector or intend to provide support to financing of private real estate projects — the latest guideline for high quality corporate bond issuance did not rule out real estate issuers.

High quality companies, referring to corporate issuers with a 'AAA' credit rating or feature financial indicators and with no bond defaults in the past three years, will receive priority from the commission in their application for corporate debt issuance, according to the guideline issued by the commission on Dec 12.

Such moves will bring the overall debt approval procedure set by the commission on a par with China's other major corporate debt regulatory bodies. Issuers do not need to provide documents for specific projects in order to get approval, but only need to propose the area expected to be invested in.

Zhang Xu, a fixed income analyst with Everbright Securities, said the guideline has set high standards for qualified issuers, and most of them are expected to be State-owned companies with promising revenue gains.

As the central government introduced a slew of measures to boost nonfinancial sector, there have been no signs to relax control of the real estate sector or to imply significant policy easing in the next year, and real estate developers' cash flows are expected to get tighter.

After two years of higher-than-expected growth, real estate investment growth will drop by around 5 percent to 10 percent in the next year compared to 2018, according to analysts with China International Capital Corporation.