New rules from the China Securities Regulatory Commission (CSRC) mean real estate companies will have to seek approval from the Ministry of Land and Resources before refinancing, the China Securities Journal reported on Friday.

Refinancing projects for companies in other industries, including steel, cement, and plate glass, will also have to be approved by the National Development and Reform Commission, the report said.

The rules won't just affect property developers, but also companies that invest in property shares, according to an official close to the information who declined to be named.

The stock issuing department of CSRC says companies must report details of their real estate business before applying for refinancing projects.

Audit work from the Ministry of Land and Resources for refinancing will focus on the land use rights.

Real estate companies with refinancing projects will have to obtain these rights before beginning their applications, and the companies will be required to file progress reports on their applications if they purchase new land.

The rules will have an adverse effect on real estate companies that are in a bad financial situation, said a real estate industry analyst from China Post Securities Co.

"The industry is a typical capital-intensive industry, and its stocks account for 5 percent of the average A-share market capitalization," he said.

To impose an audit on land use right will limit property developers and drive up land prices, the analyst said, because after refinancing, they can obtain land use certificates with greater ease.

A sample of 30 listed real estate companies showed that, between 2000 to 2009, they raised 154.6 billion yuan (US$23.25 billion) by issuing additional shares and corporate bonds.

However, during those years, the total value of their net profit was 66.3 billion yuan, with an accumulative dividend of 18.4 billion yuan, according to data from International Finance News.

The figures show that the companies' total net profit equated to less than half the capital raised by the stock market in the last 10 years. The sample listed companies include big property developers, such as China Vanke Co and China Merchants Property Development Co Ltd, and companies with long-term losses, such as Vanfund Real Estate Co and Dalong Estates Co.

Zuo Xiaolei, chief economist of China Galaxy Securities, said financing channels for real estate companies' should not be blocked, and the key to curbing the precipitous rise in the price of housing is to exert rigorous controls on bank loans instead.

(China Daily October 16, 2010)