The Study Of Factors Causing Real Estate Companies Defaulting In A High Frequency

The global economic downturn led by COVID-19 epidemic together with the adjustments of domestic industry policies have accelerated the intensive exposure of risks in China’s real estate industry,and a large-scale flood of defaults has been triggered ever since 2020.By August 2022,the number of defaulting enterprises had risen to 38,with the amount of domestic bond defaults summing up to 231.676 billion yuan.Coupled with offshore debts as well as loans of other financial institutions,a potential systemic risk might have already been set off.Based on the literature review,this paper applies moral hazard theory,financial distress theory and information asymmetry theory to study and analyze the bond issuance and default data of real estate enterprises in China,summarizing the causes of default in the real estate industry,and further selecting two representative comparison groups of defaulted real estate enterprises and non-defaulted real estate enterprises,analyzing them on both operational and financial aspects,and using the Z-score model to assist in determining their the risk of default and summarize the common causes of default.As one of the top 20 real estate enterprises in China,Yango Group’s development path and default situation are typical in the industry.Through a case study of Sunshine City Group,we analyze its operation and financial situation,summarizing its default history,and study the causes of risks of real estate enterprises in the context of frequent defaults by combining point and surface.In terms of debt issuing entities,the highly leveraged financial structure and aggressive expansion strategy lead to extremely weak financial resilience of real estate enterprises themselves,lack of room for maneuvering and extreme reliance on liquidity.In terms of policy regulation,the real estate regulation policy is too harsh without buffer zone,and various aspects of capital control directly triggered the default of real estate enterprises.In terms of financial institutions,under the policy wind,the financial institutions represented by banks have adopted the means of large-scale loan extraction and cut-off to maintain their own interests,but directly cut off the liquidity of real estate enterprises,accelerating the default of real estate enterprises.In terms of intermediaries,accounting firms had the motive to embellish the statements before the default,and quickly adjusted the accounting policies after the default,resulting in huge impairment charges and doubtful credibility of accounting data;while rating agencies,as gatekeepers of the capital market,had the problem of inflated level and lagging response,and the rating adjustment for enterprises did not match their risk exposure.Combining the research results of this paper,we make risk prevention and control enlightening suggestions for all parties involved in the bond market.For real estate bond issuing entities,it is advocated to scientifically formulate business strategies in line with the trend,while strengthening internal control,prudently using financial leverage and maintaining a healthy financial level to adapt to the industry development.For the regulatory agencies represented by the government,it is recommended to formulate reasonable regulatory policies,pay attention to the combination of long-term and short-term regulatory means in policy formulation,take risk mitigation into account,and implement the spirit of the rule of law under the current situation of frequent defaults,actively introduce a supporting mechanism for default disposal,protect the interests of investors,and promote market self-regulation.For the investors represented by financial institutions,it is recommended to pay attention to risk identification before investment and strengthen industry research and risk control management;After investment,we should pay close attention to post investment management,take preventive measures,and actively handle default after risk events,so as to avoid making loans in a one size fits all manner.Finally,for the third-party intermediaries,in terms of rating agencies,it is recommended that they remain independent and objective,vigorously develop the investor payment model,deepen the level of industry research,and enhance the level of risk disclosure and early warning functions;In terms of audit institutions,it is recommended that they strengthen their due diligence,improve the quality of financial audit,do a good job of basic checks on the capital market,and implement the responsibilities of intermediary institutions.