Who is supervising the non-standard business of real estate finance?

The non-standard business of real estate finance is subject to strict supervision by regulatory authorities. Recently, the non-standard real estate business of some trust institutions has been suspended. Many real estate companies and trust persons interviewed said that after the tightening of non-standard business, the capital chain of real estate companies was under pressure. In particular, some small and medium-sized real estate companies relied on trusts for their financing channels, and life was difficult after the tightening of non-standard business. Against this background, bonds and quasi-REITs have become financing channels valued by real estate companies, and leasing financing projects are in high demand.

The capital chain of real estate companies is under pressure

“After the tightening of non-standard business, we only do real estate trust projects that meet the '432' conditions. But now it is basically impossible to find any that meet the conditions. Projects have not been completed for the time being. ""432" means that the real estate project has "four certificates", 30% is self-owned capital investment, and the developer has secondary development qualifications.

At the beginning of 2018, multiple regulatory authorities jointly promoted the channel and deleveraging. At the end of December last year, the China Banking Regulatory Commission issued a notice stating that commercial banks and trust companies carrying out banking and trust business shall not illegally invest trust funds in restricted or prohibited areas such as real estate, local government financing platforms, stock markets, and overcapacity.

“In the past, if we encountered projects that did not meet the '432' conditions, we could design the transaction structure to be more flexible, such as through specific asset income rights, debt acquisition, equity form, fund limited partnership, etc. To carry out real estate trust business in disguise,” said the above-mentioned trust person.

The scale of non-standard financing used by large real estate companies is not large and has not been greatly affected so far. Small real estate companies rely more on trust channels for financing and are greatly affected. Chen Duo, head of China real estate research at Nomura Securities, said that after 2015, many large real estate companies adjusted trust entrusted loans into bond financing or bank loans.

Ding Wei, deputy general manager of the Beijing regional headquarters of Greenland Financial Holdings Group, said that the company’s funds mainly come from bank credit, and the proportion of non-standard channels is very low. Therefore, the company will be affected after the tightening of non-standard business. Not big. However, the cash flow of some small and medium-sized real estate companies is relatively tight. They previously relied on trust channels for financing, and now they may have a difficult time.

The general manager of a real estate company in Henan said that after the tightening of non-standard business, the capital chain was greatly affected, which first affected the funds for land acquisition. Generally, 30% of the company's land development funds are its own funds, and the remaining 70% is settled through trusts and other channels.

“Now the cost of capital has increased by 2-3 percentage points compared with the same period last year. The capital chain of some small developers may be broken this year, and real estate companies should wait for the winter.” The above-mentioned trust person said, “We recently talked to Talking about real estate companies, there is no need to discuss pricing for real estate company financing this year. It will be good if you can get financing. Last year, the capital cost of real estate companies was about 9%, and this year it may be more than 15%. ”

< p> Yan Yuejin, Research Director of the Think Tank Center of E-House Research Institute, believes that the financing pressure of small and medium-sized real estate companies has begun to appear.

Rectifying non-standard businesses

Market participants pointed out that a large number of financing corresponding to non-standard assets eventually flowed to restricted areas such as real estate.

The Zhongtai Securities Fixed Income Research Report estimates that the cumulative scale of non-standard financing support for real estate development in 2017 was around 2.5 trillion to 3 trillion yuan. Non-standard financing accounts for about 20%-25% of real estate development funds.

"According to relevant regulations, real estate companies must have "four complete certificates" for bank loans. Developers with incomplete certificates can obtain financing through direct investment in financial management, securities asset management plans, trust plans, etc. "A person from the corporate department of a large state-owned bank said, "The scale of non-standard business has grown rapidly in the past two years because trust companies and other channels have short approval times and convenient financing."

A large credit rating company for industrial and commercial enterprises. Ministry of Finance sources said that if real estate companies want to obtain non-standard financing, they must pass external ratings. After mid-2017, some trust companies’ real estate-related products require real estate companies to have a rating of AA. For companies with average qualifications, trust companies are more cautious when engaging in non-standard business.

Land fund allocation is an important channel for financial management funds to enter real estate companies. The person in charge of the real estate business department of a city commercial bank in the central region said that the bank's land loan financing business was very prosperous in 2017, lending tens of billions of yuan and making profits of more than 200 million yuan. During the peak period, the leverage ratio of land allocation was generally 3:7, which has recently been reduced to 5:5 out of caution.

Zhang Dawei, chief analyst of Centaline Real Estate, said that the tightening of non-standard businesses has just begun, and it is difficult to predict the impact. Many real estate companies are exploring other financing channels.

Moving to long-term rentals

Chen Jun (pseudonym), an asset securitization person at a securities firm in Beijing, said that in the context of more prudent bank loan approvals and limited non-standard channels, bonds and Instruments such as REITs have become one of the few financing channels that real estate companies can still use.

“In the context of promoting both lease and purchase, leasing debt financing and asset securitization projects are relatively popular.” Chen Jun said.

Taking REIT-like projects as an example, the issuance scale exceeded 26 billion yuan in 2017, a significant increase from about 10.4 billion yuan in 2016. "Two days ago, Country Garden (Hong Kong stock 02007) issued quasi-REITs with a scale of 10 billion yuan, which immediately raised the overall size of quasi-REITs this year." Chen Jun said.

Chen Jun believes that in the future, asset securitization can be used in all aspects of the leasing market to reduce the financial pressure on related companies. For example, rental property, rent and decoration can all be financed through a REIT-like structure.

Banks are also very enthusiastic about leasing financing business. Recently, Bank of China (Hong Kong stock 03988) signed a strategic cooperation agreement on rental housing financial services with eight local state-owned enterprises, and plans to provide the above-mentioned enterprises with housing rental financial support with a financing scale of approximately 170 billion yuan. China Construction Bank (Hong Kong stock: 00939) has also deployed housing leasing finance by supporting companies to issue REITs and supporting local governments to develop personal leasing platforms.

Bond financing is also heavily relied upon by real estate companies. Recently, real estate companies such as Longfor Real Estate (Hong Kong stock 00960), Country Garden, Greenland Holdings, Tahoe Group, and Xiangyu Holdings have issued U.S. dollar bonds overseas.

Zhang Dawei said that domestic financing of real estate companies has tightened, and overseas financing channels have attracted more and more attention.

It’s time to take control of real estate.