State-owned Banks Commit 3 Trillion Yuan to China’s Risk-fraught Rental Market

The Chinese central government is pushing for the country’s banks to spur the growth of the home rental market, as part of efforts to rein in speculative property investment and shore up housing affordability.

China’s big state-owned banks have pledged over 3 trillion yuan to financing for rental housing according to calculations by Reuterswith recipients including real estate developers, leasing firms and renters themselves.

The figure committed by state-owned lenders dwarfs the total value of the Chinese rental market in 2017, which stood at 1.3 trillion yuan

China Construction Bank, for example, is providing renters with decade-long collateral free loans of up to 1 million yuan in the southern Chinese metropolis of Shenzhen, targeting white collar workers in the city’s flourishing tech sector.

Under its rental loan arrangements property developers can lease apartments to CCB, before CCB subsequently leases them to tenants who borrow from them.

Industrial and Commercial Bank of China is running a similar program in the Guangdong province capital of Guangzhou, while Bank of China has also started to lend to renters in the coastal city of Xiamen.

Sources said to Reuters that the banks are likely to incur losses on the loans, given that official pressure to expand the rental market has compelled them to price credit beneath prevailing market rates.

As consequence China’s smaller commercial banks have shied away from rental loans, expressing concern over heightened risk and meagre returns.

The big state-owned banks that are providing rental credit are  reportedly mulling the conversion of loans into asset-backed securities or real estate investment trusts, which will enable them to shift risk to other investors.

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