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China to Relax Restrictions on Borrowing for Property Developers

China is considering easing its "three red lines" policy, which restricts borrowing for property developers, to support the troubled sector.

China Buildings
Buildings in China

The policy, introduced in August 2020, limits the amount of new borrowing property developers can take on each year.

According to Bloomberg News, Beijing may allow some property companies to increase their leverage by relaxing borrowing caps and extending the grace period for meeting debt targets set by the policy. The deadline for meeting these targets may also be pushed back by at least six months.

Under the proposed changes, developers' debt growth restrictions will be eased depending on how many of the "three red lines" they meet. Companies that meet all three thresholds will see their borrowing caps eased.

China's property sector, which makes up a quarter of the country's economy, was severely impacted in 2020 as cash-strapped developers could not complete apartment construction, leading to a mortgage boycott by some buyers. Several of China's largest developers also defaulted on their debt and are currently involved in restructuring negotiations.

To help revive the sector, policymakers in China have recently implemented a range of measures, including making it easier for developers to obtain funding, extending loan repayment periods, and providing additional assistance for homebuyers. However, analysts expect the recovery process to be slow and uneven.

The "three red lines" policy established caps on debt-to-cash, debt-to-assets, and debt-to-equity ratios and required property developers to provide more information about their debts.