Summary of Key Points
After entering a period of deep adjustment, the real estate industry has seen companies struggling with tight cash flows. As a result, they often use "property in lieu of payment" (using properties to settle construction or payment obligations) to repay their suppliers. Suppliers are forced to take over these properties but face new challenges such as property depreciation, difficulties in selling them, and risks related to property rights. Financial reports from several listed companies have shown a continuous increase in the scale of property exchanges used to settle debts. Recently, various regions have introduced policies to regulate such transactions in an attempt to mitigate these risks and facilitate the liquidation of assets.
Detailed Analysis
1. Property in Lieu of Payment: A Last Resort for Real Estate Companies
Property in lieu of payment essentially means that real estate companies, unable to pay their suppliers (such as those providing decoration, building materials, or furniture services), use the properties they have developed to settle their debts. This was once a rare occurrence, but since the real estate market declined in 2021, it has become a common practice for dealing with financial issues.
For example, the decoration company mentioned in the news was originally a contractor for the real estate company. However, due to the client's bankruptcy, it not only failed to receive its payment but was also forced to take over an unfinished building—transforming from a contractor into a developer, all out of necessity.
2. The Dilemma for Suppliers
For suppliers, choosing to accept property in lieu of payment presents a difficult situation:
- Not Accepting: If they refuse, the real estate company may become insolvent, and the supplier could end up with unpaid accounts and gain nothing.
- Accepting: They face various problems, including unclear property rights (the property might be mortgaged or seized), difficulty in selling the property due to a downturn in the market, and an overestimated value that results in a loss of actual worth.
The decoration company that took over the building invested funds to renovate it but struggled to sell it during the market downturn, affecting its operations for several years. Nevertheless, they stated, "At least we recovered some of our debt—better than nothing." This illustrates the trade-off involved.
3. Property in Lieu of Payment as an "Invisible Burden" in Financial Reports
Many real estate-dependent listed companies have disclosed this practice in their financial reports:
- Yaxia Co., Ltd. (decoration company): Prepaid property amounts increased from 957 million yuan at the end of 2024 to 1.138 billion yuan in 2025, all of which were due to property exchanges.
- Dongfang Yuhong (waterproof materials): 1.416 billion yuan was invested in real estate in 2024, with most of it coming from debt settlements.
- Deou Home: Accepted approximately 445 million yuan worth of properties (residences and shops) between 2024 and 2025.
- Monalisa (ceramics): The increase in its investment in real estate also resulted from property exchanges by real estate companies.
These figures show that suppliers not only lost business but also took on the financial burdens of becoming property owners.
4. The Pitfalls of Property in Lieu of Payment
This practice is far from ideal:
- Property Rights Issues: Some properties are mortgaged or seized, making them unsellable for suppliers.
- Value Reduction: During market downturns, the actual value of the properties is much lower than their assessed value at the time of the exchange, leading to significant losses for suppliers.
- Disputes: Real estate companies may sell the same property multiple times or use these exchanges to effectively reduce prices, causing complaints from buyers.
Experts like Yan Yuejin point out that while property in lieu of payment is a legitimate debt settlement method, irregular practices can lead to problems. For instance, although the Civil Code grants suppliers priority in receiving payments, unclear property rights are a common issue.
5. Regulatory Measures to Regulate Property Exchanges
Recently, several regions have started to regulate these transactions. For example, Chenzhou in Hunan introduced policies in 2026 that address three key issues:
- Clarification of Rights: Property exchanges can be registered online to clarify property rights and prevent multiple sales of the same property.
- Transfer of Ownership: Suppliers are allowed to transfer the property to buyers through a single contract, facilitating faster liquidation.
- Fund Supervision: Sales proceeds from these transactions must be used first to pay for construction costs and workers' wages, preventing real estate companies from misappropriating the funds.
Similar policies have been implemented in Ezhou (Hubei) and Luxi (Jiangxi). These regulations protect buyers' interests by ensuring they do not lose both their money and the property, help suppliers sell the properties more quickly, and prevent real estate companies from manipulating prices.
Conclusion
Property in lieu of payment reflects the transfer of risks within the real estate industry to its upstream and downstream partners. For suppliers, resolving this issue is just the first step in clearing financial burdens. The industry still has a long way to go in restoring the healthy flow of capital within its supply chain. However, with regulatory intervention, these challenges are becoming somewhat more manageable.