Regulatory squeeze on China's real estate may prompt mergers

17:45, March 24, 2011      

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Since the implementation of restrictions on real estate purchases, the turnover in first-tier cities has dropped drastically. Moreover, the central bank announced on March 18 it will raise the reserve rate by 0.5 percentage points to 20 percent, which will put stress on the insufficiently-funded real estate enterprises. Some experts even predicted a merger wave in the next half year.

30 percent currency quantity fixed

The move by the People's Bank of China, China's central bank, to raise the reserve rate marks the ninth time since last year that the central bank has raised the reserve rate, and the rate has reached a new high. The current increase has frozen about 360 billion yuan worth of bank financing.

The analyst Li Huiyong considered the rise a reasonable expectation, and predicted another rise in April.

Fan Gang, the member of currency policy committee of the People's Bank of China said that more than 30 percent currency quantity has been fixed by central bank. The analyst interpreted the rise to reduce the impulse of bank loans, therefore adding up difficulties for estate enterprises' financing from banks.

Turnover shrunk

The constant real estate adjustment policies are targeting the developers and their finance chains. Most of the developers are taking measures, such as pricing down the properties, slowing down purchases of real estate or diversifying the types of commodities. Compared with the conglomerates, the small-sized firms are rather passive in this game.

Public data shows that 30 public real estate companies in 2011 released merger plans and external investment involving turnover of 30 billion yuan.

By Li Yancheng, People's Daily Online

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