When structured finance meets the property industry

Data from the National Bureau of Statistics (NBS) show that up to RMB3.06 trillion was invested into real estate development across China from January to April 2018, representing a nominal growth rate of 10.3% on a year-on-year basis. Of that amount, 69.73% goes into home developments. Being a “capital reservoir”, the housing market has a critical impact on the economy and people’s livelihood in China.

As regulatory policy is concerned, the People’s Bank of China said at its 2018 work conference that it would support the cultivation and development of a home leasing market, while further improving the macro-prudential policy framework to strengthen macro-prudential regulation, especially over shadow banking and real estate financing activities. Real estate developers are having less access to financial capital, given the three core regulatory principles being implemented for the extensive asset management system, including prohibition of “passageway business”, restrictions on “leverages”, and “piercing into underlying assets” review.

Against this background, commercial banks, trust companies, fund company subsidiaries, securities companies and private equity funds are exploring new approaches to investing in the real estate industry that adapt to the era of the extensive asset management system. Current regulatory policies, aimed at creating more sources, also bring new opportunities for these players.

Li Kailun is a senior associate at Merits & Tree Law Offices