Recent calls from the Chinese banking regulator for trust companies to contain growth in their real estate operations have already prompted one leading player to suspend operations in this area.
Everbright Trust (光大信托) issued an urgent internal memo on 11 July announcing that all real estate project fund-raising would be fully suspended by 12 o’clock that day (including direct sales and agency sales), according to domestic media reports.
Everbright Trust has since confirmed the temporary suspension of all new fund-raising for real estate trust operations, in response to calls from the Chinese banking regulator.
Last week senior officials from the China Banking and Insurance Regulatory Commission (CBIRC) said that the agency had recently convened discussions with certain trust companies in order to prompt them to control the growth of their operations and step up risk control efforts.
According to CBIRC the warnings are intended to strengthen risk control in the real estate trust sector, and address the problem of certain real estate trust companies posting excessively rapid growth.
Data from CBIRC indicates that as of the end of May 2015 the real estate trust asset balance was 3.15 trillion yuan, accounting for 14% of all trust assets, for an increase of 166.597 billion yuan compared to the start of the year and a YoY rise of 15.15%.
Data from PY Standard further indicates that 2954 trust products targeting the real estate sector were issued in the first half of 2019, accounting for 39.43% of the total and raising as much as 453.194 billion yuan in funds.
Everbright Trust is far from the only company that has come under pressure from CBIRC, with a Shanghai-based trust company telling 21st Century Business Herald that it had received regulatory guidance calling for it to control the scope of its real estate operations, and a northern Chinese trust company indicating that the frequency of inspections had increased considerably since the start of 2019.
Industry insiders say trust company real estate projects began to see flourishing activity in October 2018, as a result of changes to local government financing practices in China.
The two main areas of operation for trust companies in China are real estate and infrastructure, the latter of which are government projects.
Since the second half of 2018, however, Chinese local governments have been encouraged to issue low-cost bonds to replace trust financing, compelling trust companies to shift towards real estate projects due to cost and return considerations.