(Yicai Global) Aug. 24 -- The People’s Bank of China set new financing rules for key real estate firms last week to mitigate risks as the pace of borrowing by property developers reaches record heights.

The Ministry of Housing and Urban-Rural Development and the central bank held a meeting with key real estate companies on Aug. 20 to formulate monitoring and financing management rules for key real estate companies, the PBOC said on its website yesterday. They also discussed the further implementation of long-term mechanisms for the real estate sector, it added.

Real estate firms’ borrowing set a new high in July at CNY70 billion (USD10 billion), the Beijing News reported, citing Zhang Dawei, chief analyst of Centaline Property Research Center.

“Excessive financing by real estate firms is the main reason why new rules are being drawn up," Zhang said. The purpose of regulation is for the health and stability of the real estate market, he added.

"Three red lines" have now been set up in order to control the scale of debt of property developers. 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.

The rapid recovery of real estate sales has driven residents' mid- and long-term credit to continue to build up on a large scale, according to a research report by Sun Binbin, chief fixed income analyst at Tianfeng Securities. This has led to the concern that the real estate sector might be taking up too large a proportion of financial resources once again becoming an issue.

CNY26.1 billion (USD3.8 billion) of credit was issued to the real estate industry in the first half of August, the most so far this year, according to Centaline Property data. So far this year, real estate companies have issued 811 bonds, raising CNY624.2 billion (USD90.2 billion).

Authorities has not yet commented on the "three red lines" nor have they issued a detailed description of the financing management rules for real estate companies. Authorities will set different thresholds for companies depending on their growth rate and their interest-bearing liabilities, the PBOC statement said.

Housing prices in first-tier cities and some second-tier cities have been on the rise recently and the land market continues to be active. On the one hand, it shows that property developers are not short of funds. On the other, it may further spike the expectation of rising housing prices, Sun said.

Editor: Kim Taylor