Reflections On The High-leverage Growth Model Of Real Estate Companies

Since the subprime mortgage crisis in the United States,under the backdrop of promoting domestic demand and maintaining growth and the government's macro-control,the investment in real estate development in China has maintained rapid growth,and the compound growth rate has reached nearly 20%.Under the loose monetary policy,out of the pursuit of profits,real estate companies have been blindly expanding their financing scale and investment,and have applied for more credit in various ways.The result of the unordered development is a large backlog of real estate,a drop in the turnover rate,and a significant increase in the risk of bad debts borne by banks.At the same time,however,the actual operation and management performance of the company did not make these credit funds produce real economic value-added,and many high-leverage housing companies were caught in the vicious cycle of borrowing new debt to pay back old debt.Once the capital chain breaks and the real estate bubble bursts,companies will fall into a crisis of insolvency,asset prices will fall sharply,and bank credit will become bad debts.The linkage crisis between these two industries will trigger the outbreak of systemic financial risks.Therefore,maintaining financial security and controlling the flow of funds into the housing market to curb the bubble is imminent.How to measure the effectiveness of leverage,identify risks,and use leverage correctly to generate positive value,is crucial for highly leveraged real estate companiesThis article will use Evergrande Real Estate Group as a case study to analyze the development issues and risks faced by high-leverage housing enterprises.It will analyze Vanke Real Estate as a comparative case and draw reference from Evergrande real estate companies on where to go..The research results show that the highly leveraged exogenous scale growth model is difficult to sustain the long-term development of the company.Especially when the financial leverage is used to a certain extent,the operating efficiency of the enterprise cannot support the borrowing costs.If the capital structure is not changed in time,the company will Facing bankruptcy crisis.The low-leverage endogenous growth model is the fundamental way for real estate companies to achieve sustainable growth.Therefore,in the process of development,housing enterprises should not blindly pursue scale,but should also focus on improving the efficiency of business operations,especially the endogenous growth rate that is the return on net operating assets,and achieve stable and effective scale growth.For Evergrande-type housing enterprises,reducing leverage is not only a policy requirement,but also an internal demand for the development of enterprises.It is an inevitable choice for safeguarding China's financial security and ensuring that no systematic risks occur.