An increasing number of mainland developers are tapping private real estate funds to finance costly land acquisitions, an alternative to trust loans which have come under tight regulatory scrutiny.
Teaming up with such funds will enable developers to accelerate expansion while maintaining a low gearing ratio.
It will also help them present a favourable balance sheet to overseas bond markets, which have become a vital fundraising channel as domestic banks have recently preferred to lend to stronger or state-owned developers.
Yuexiu Property, which sources more than half its borrowings offshore, teamed up with an investment fund last year to buy four land parcels, which reduced attributable costs to 1.4 billion yuan (HK$1.7 billion) from 15.7 billion yuan.
The Guangzhou-based developer has an option to buy back shares owned by the fund in the joint venture, paying an annual interest rate of 11 per cent.
The company played down the apparent high cost which is similar to that of trust loans, but much higher than the benchmark one-year bank lending rate of 6 per cent.
"Without such a partnership, we could miss the opportunity to buy land in prime locations," Yuexiu chairman Zhang Zhaoxing said in March.
Zhang said a nine billion yuan site bought jointly last year in Wuhan could easily rise in price by one billion yuan this year.
Mainland developers are returning to top-tier cities such as Beijing and Shanghai, where the markets are seen as more lucrative and resilient than others.
That is driving up land prices in the cities, particularly in core areas with limited supply. But housing inflation has eased in recent months as developers cut prices to speed sales in oversupplied markets such as Hangzhou, where Greentown China is based.
Once burned by high leverage, Greentown is now talking to a number of financial institutions about fundraising for projects.
With land prices already steep and still rising, Greentown chief executive Shou Bainian said it would not be possible to expand using retained profits while its net gearing ratio, at 60.1 per cent by the end of last year, was already high.
"We will mainly rely on our brand recognition and management to support growth and reduce risks, partnering with those who could raise money," Shou said.
Last year saw the launch of 132 private real estate funds, 40 per cent more than in 2012. Funds raised hit a record US$10.7 billion, an increase of 79 per cent, according to data from Zero2IPO, a private equity consultancy.
Only nine such funds were launched in the first quarter of this year, raising US$496 million, it said.
Developers including Greentown once relied heavily on trust loans. However, the authorities have intensified their efforts in recent years to crack down on such shadow banking activities, seen as a threat to the country's still fragile financial system and even the broader economy.
Trust loans to the entire mainland economy increased 280.2 billion yuan in the first quarter, down from 824.4 billion yuan in the same period last year, according to central bank data.
Developers also encountered weak sentiment and regulatory hurdles in raising funds from onshore stock markets.
Fifteen developers issued offshore bonds in January before the United States began tapering its quantitative monetary policy, according to data from global ratings agency Moody's Investors Service.
The market froze in March following the collapse of Zhejiang Xingrun Real Estate, a private developer with 3.5 billion yuan of debt, but has shown signs of a recovery in recent days.
"We expect bond issuance to slow for the rest of the year as overall market sentiment cools," Moody's said.
"We also expect operating cash flow growth to slow due to construction spending to complete projects presold [last year], while contracted sales growth is also slowing against longer lead times for banks to approve mortgage applications."