Abstract:In the process of resolving of risks associated with real estate enterprises, the "Project-based resolution" approach has certain limitations. Firstly, it may lead to the preferential resolution of high-quality assets at lower prices, increasing the proportion of non-performing assets in the remaining assets and the difficulty of subsequent resolution. Secondly, while prioritizing the resolution of some project assets, it also prioritizes the settlement of some related debts, raising issues of fairness. Thirdly, "Bao Jiao Lou" policy implies the completion of buildings that have already been pre-sold. If there is no distinction made between regions and markets, this approach may lead to significant waste of resources. Fourthly, it does not assist existing real estate developers in transitioning to a new real estate development model.
We propose a real estate enterprise risk resolution plan that is more improved than the current practices. Considering that real estate enterprises in China are more akin to shadow banks, we can draw on the experience of risk resolution and transformation in the banking industry, and follow the "good developer - bad developer" model. This involves stripping the non-performing assets held by real estate companies to a "bad developer" at a certain consideration, while all liabilities remain with the "good developer." Concurrently, a comprehensive debt restructuring and recapitalization of the "good developer" should be undertaken. This model aims to ensure the fair treatment of creditors' rights, avoid selective biases brought about by project-based resolution. Moreover, with the government's preferred stock investment, the "good developer" can transition to a new real estate model, reduce leverage, and break free from reliance on pre-sale funds. The subsequent asset resolution of the "bad developer" can be integrated with affordable housing construction, and the government can gradually exit its equity in the "good developer" once the real estate market returns to normal. The resolution cost of this plan will be primarily borne by creditors, achieving minimal resolution costs and effective resource utilization, and it also helps to quickly break the self-fulfilling pessimistic expectations in the new housing market.
