Chinese real-estate developers have had a busy year rushing abroad for refinancing debt as regulatory pressures and tight credit conditions at home makes fund raising costly. In November alone, at least 19 Chinese real estate enterprises issued US dollar bonds, with a total value of approximately US$6.86 Billion. But 2020 should see a moderate pace of issuance, analysts say.

“Chinese authorities are now 18 months into a campaign of financial tightening targeting the real estate sector, and have shown no indication that they will turn on the credit taps to assist developers who struggle to meet their financial obligations,” said Michael Cole, chief analyst at Asia real estate intelligence platform Mingtiandi.

“Even major players such as HNA have been forced to sell off assets to pay their bills and have received little assistance from the government or from lenders in the mainland market,” Cole added. “While the situation could change in 2020, I would be surprised to see any broad-based increase in domestic bond issuance by Chinese developers in the near future.”

State owned real-estate firms and large privately-owned developers who can easily issue bonds at reasonable levels of yield will be able to ride out this difficult environment.

“After a credit explosion in 2009 helped lead to home price inflation, and a later series of defaults among small to medium-sized developers when the market slowed, China’s central authorities have pushed for consolidation of the real estate sector as a way to increase their control over the industry,” Cole said. “The domestic bond market has served as a means of support for this consolidation by continuing to provide financing for the largest developers, most of which are state-owned enterprises.”

Everbright Solid Income said in a research report the financing environment is still tight. It said that the “scale is king” mantra among investors has morphed to “cash flow is king.”

It was no surprise Chinese real-estate firms had turned to foreign bond markets for cash.

Independent research firm CreditSights said a record amount of dollar bonds were issued by Chinese developers in the first 9 months of 2019. High yield or crossover credits in the sector alone issued a total of $57.4 billion, up 94% from the same period a year ago. This contrasts with the 4% decline in issuance in the domestic market in the same period by these issuers.

According to Cole: “At this point, Chinese authorities are only permitting the country’s real estate developers to seek overseas bond financing in cases where they need to roll over existing bond issuances. During 2019, China’s homebuilders have not been allowed to turn to overseas bond markets to seek fresh capital. This government-enforced financial discipline is part of an effort to control home price growth that has been a focus for the Communist Party for two years as it seeks to prevent unrest sparked by high housing prices.”

However, the issuance flow is seen moderating in 2020. Bond supply will likely decline significantly in 2020 versus the record issuance in 2019, due to the NDRC quota rule in July allowing only refinancing of medium-to-long term offshore debt maturing within a year, Nomura said in a report.

The Japanese bank expects gross supply of around US$45 billion, down from US$62 billion year to date in 2019, which would coverUS$27 billion of offshore maturities in 2020 and pre-funding of some of the US$27 billion bonds maturing in the first half of 2021.

“We are overweight on the China property space for 2020 given our expectation for largely stable fundamentals and supportive technicals that could extend the tightening trend that we have seen in 2019,” Nomura said, referring to the tapered supply and strong demand in the sector because of fund inflows.