(Yicai Global) Aug. 28 -- The People's Bank of China has asked 12 large property developers, including China Vanke and Sunac China Holdings, to submit plans by the end of September on how they can reduce their debt levels as the central bank clamps down on excessive leverage in the real estate sector, the Economic Information Daily reported today.

The developers must detail the measures they intend to take to reduce their borrowing within one year, and how they will fully meet the government’s debt targets within three years, the report said. If they fail to meet these goals, the PBOC will instruct banks to limit the amount of lending to these companies.

China’s central bank and the Ministry of Housing and Urban-Rural Development held a meeting with key real estate companies on Aug. 20 to formulate new monitoring and financing management rules to reduce risk in the sector, the PBOC said on its website on Aug. 23, without naming any specific companies at the time.

It set "three red lines" to control the scale of debt of real estate companies which will come into force from Jan. 1 next year, the Economic Information Daily said. These are a 70 percent upper limit of debt-to-asset ratio after excluding advance receipts, a 100 percent upper limit for net debt ratio and a one-to-one down limit ratio for cash against short-term debts.

Of China’s top 50 property developers, only 12 firms meet all three requirements, according to Tianfeng Securities’ calculations based on last year’s financial data. And there are 14 that do not meet any of them, it added.

Most of the borrowing is in the form of bonds. As of Aug. 24, Chinese real estate firms had issued USD57.8 billion in bonds in the domestic market, close to last year’s total of USD62.3 billion, and USD21.9 billion overseas.

As regulators clamp down on debt levels, developers will have to slow down on land purchases and instead speed up the turnover of inventory and promote sales to increase their intakings, the report said, citing an industry insider.

Editor: Kim Taylor