China clamps down on trusts to cool housing sector

Banking regulator targets one of the last financing channels available to developers
April 21, 2017 12:00PM

Residential buildings in Beijing, China (Credit: Getty Images)

From TRD New York: Chinese authorities looking to cool the country’s overheated housing market are now focusing on trust companies, which they believe are funding the burgeoning development sector.

China’s banking regulator will take action against trusts that lend through partnerships, asset management plans or related businesses, Bloomberg reported. It’s a $2.9 trillion industry.

The China Banking Regulatory Commission’s action is the latest measure to tackle the red-hot property market. In February, authorities suspended property-related private equity investments in cities with “excessive” home prices. They also banned private equity lending to developers for land purchases or down payments.

“Trusts are one of the few financing channels that are still viable for property firms,” said Liu Dongliang, senior analyst at China Merchants Bank Co., told Bloomberg. “The CBRC’s requirements may further limit this channel and will have negative impact on the real estate industry.”

Although regulators are taking steps to cool the market, home values in December jumped 11 percent year-over-year, the most in six years. In addition to measures to cool its own housing market, China has cracked down on investments in real estate abroad.

The CBRC told companies to limit the size of real estate trusts in major cities, and it plans to study ways to monitor liquidity risks of the real estate trust industry. The authorities think some trust companies have been bending rules and providing financing to developers. [Bloomberg]E.B. Solomont