Summary of Key Points
The new real estate financing policy issued by the China Securities Regulatory Commission on August 28 is not merely about providing temporary support to real estate companies, but about reconstructing the industry's fundamental rules of survival. It marks a shift away from the old model that relied on the unilateral rise in housing prices, high leverage, and land-based fiscal support, towards a market-oriented approach that focuses on the projects themselves rather than the companies. The goal is to ensure that only high-quality projects with genuine demand and the ability to generate cash flows receive financing, while unviable projects and companies are phased out, thereby promoting the industry's transition from expansion of scale to creation of value.
Detailed Analysis
Why the Old Real Estate Model Can No Longer Sustain Itself?
Over the past two to three decades, the real estate sector has thrived through a combination of high leverage and rapid turnover: companies used a small amount of their own capital to acquire land, then relied on bank loans, trusts, and pre-sale funds (down payments plus mortgages from buyers) to quickly build and sell properties, using the proceeds to acquire more land and expand their operations. This model was feasible because of three key factors:
- Unlimited demand: Urbanization, population growth, and the continuous demand for better housing;
- Rising housing prices: As land and property values increased, the collateral became more valuable, making financing easier;
- Collaboration from all parties: Local governments benefited from land sales to fund infrastructure projects, banks were willing to lend to real estate companies, and buyers were eager to purchase properties (fearing price increases).
However, these factors have now changed: urbanization has slowed down, population growth has declined, and housing demand has become saturated. Housing prices have stopped rising or even fallen, reducing the value of collateral, and financing has tightened, with fewer pre-sale funds available. The once-positive cycle has turned into a negative one: difficulty in financing leads to reduced land acquisition, poor sales, decreased cash flows, and further difficulties in obtaining financing, ultimately leading to the collapse of the old model.
2020 Was Not the Cause of the Crisis, but Rather a Mirror Reflecting the Problems of the Old Model
Many believe that the financing policies of 2020 (such as the "three red lines") were the root cause of the real estate crisis, but in reality, these policies were merely a stress test.
- Real estate companies, despite appearing strong, were actually fragile, relying on continuous borrowing and expansion to survive. Without access to financing, they would fail;
- The competitive landscape within the industry had become distorted, with the focus shifting from quality products and efficiency to who could borrow the most and acquire the most land, creating an illusion of invincibility.
After the policy adjustments, the flaws of the old model were exposed: tighter financing, reduced land acquisition, declining sales, and worsening cash flows affected nearly all real estate companies. This indicates that the problem lies in the model itself, and a change is necessary.
The New Financing Measures Are Not About Unlimited Liquidity, but About Supporting Quality Projects
In recent years, policies have aimed to reduce leverage, but this alone is not enough to address the industry's issues.
- Many real estate companies, despite being struggling, have viable projects (such as essential housing units or high-quality commercial properties) that lack the necessary funding due to the financial distress of their parent companies;
- Debt restructuring only delays existing debts and does not generate new cash flows. Even if debts are extended by five years, without new revenue, the problems remain unresolved.
The new policy opens up channels for equity, bonds, and REITs (Real Estate Investment Trusts) to create a "new capital cycle": projects rely on equity/funds in the early stages, construction on bank loans/bonds, and later on, REITs/ABS (Asset-Backed Securities) for exit. The focus is no longer on land acquisition and property sales, but on whether a project can generate real revenue, regardless of the company's size.
State-Owned Enterprises Can Provide Temporary Support, but Cannot Be the Permanent Bailouts
In the past few years, state-owned enterprises have taken over many projects from private companies, stabilizing the market and preventing housing shortages and risks. However, this cannot be a long-term solution:
- The value of assets does not change just because state-owned enterprises take over; for example, an uninhabited city's land may not be sold, and a project with high costs may still not be profitable even under state ownership;
- Local finances are under pressure: Land transfer revenues have decreased from 8.7 trillion yuan in 2021 to 4.15 trillion yuan in 2025, while local debts have risen to 54.8 trillion yuan. Governments must balance infrastructure and social welfare expenditures while supporting the real estate sector, which is beyond their capacity.
Therefore, state-owned enterprises can only provide temporary stability; in the long run, market-based capital must play a role, allowing good assets to attract investment, worthless assets to be sold at their true value, and unviable projects to be phased out, so that the risks are not borne by the government.
The Core of the New Rules: Shifting from Focusing on Company Background to Project Strength
The most significant change in the new policy is the shift in the financing logic:
- In the past: Financial institutions focused on the company behind the project—whether it was a leading firm or a state-owned enterprise with high sales rankings. As long as the group had good credit, it could obtain substantial funding, with funds freely allocated between projects;
- In the future: Financial institutions will evaluate the project itself—whether it has genuine demand, reasonable costs, and the ability to generate sufficient cash flows to cover its costs and returns.
For example, even if a real estate company is on the verge of collapse, if it owns a high-quality property in a prime location with clear property rights and sufficient capital, it can still secure financing. Conversely, a state-owned enterprise project with no buyers and high costs will not be able to borrow unlimited amounts simply because it is state-owned.
The competition among real estate companies will also change: in the past, the focus was on acquiring and borrowing large amounts of land; in the future, it will be on producing quality products, managing operations efficiently, and maintaining stable cash flows. Only those companies that can generate continuous profits will survive.
In Conclusion
The new policy does not aim to return the real estate industry to the past era of price-driven growth. Instead, it signals that to survive, the industry must shift from relying on scale to creating value, based on the actual ability to generate cash flows, rather than on leverage and land-based fiscal support. The real estate sector has not ended; what has ended is the old model of making money without a clear vision.