Fundraising by property trust products in China tumbled more than 40 per cent in September from the previous month amid growing market concerns about the financial health of the real estate sector after debt woes at embattled China Evergrande Group and other mainland developers.
China’s newly-launched real estate trust products raised 16.2 billion yuan from investors in September, slumping 44.8 per cent from the previous month, according to data from investment advisory Usetrust. That marks the third consecutive monthly drop following a 24 per cent decline in August, and a 25 per cent fall in July.
Industry insiders say that the slump comes within expectations and given the continued tightening of regulations on the sector and sluggish housing market, the weakness is unlikely to be reverses in the near future.
Chinese developers are already struggling amid government’s lending curbs and surging cost of bond issuance. A rapidly shrinking market of property trust products could further squeeze funding channels of a sector suffering from slower home sales.
The slump in September was mainly attributable to tightening regulations and growing risks, said Yu Zhi, analyst at Usetrust.
Fundraising by all types of trust products totaled 96.65 billion yuan in September, down 16.6 per cent from the prior month, showed the data, mainly dragged by the slump in fundraising by real estate trust products, showed the data.
“Investors are getting increasingly concerned about debt issues in the real estate sector and meanwhile, the number of quality property projects is decreasing given the weakening housing market,” a trust industry insider told Yuan Talks. “In addition, the trust industry is still squeezing the scale of non-standard assets, so real estate trust products are expected to see more weakness going forward.”
Notably, trust products that channel money into capital markets saw a jump in popularity and fundraising. Fundraising by the type of products reached 49 billion in September, 58.5 billion yuan in August and 55.7 billion yuan in July, showed the data, accounting for 50.72 per cent, 50.53 per cent and 42.86 per cent of the total fundraising by trust products.
“Last year, our company set up a special department for trust products to capital markets and hired many talents from securities brokers and asset management companies,” a person working for a Beijing-based trust company told Yuan Talks.
“The transformation of the trust industry is a big trend. Trust companies need to reduce the reliance on the real estate sector and return to the basic of asset management and strengthen the capability in active asset management,” said Zhang Gui, deputy general manager at AVIC Trust.
Earlier this year, China’s banking and insurance regulator has pledged to continue its crackdown on the trust industry this year, with a particular focus on curbing trust financing and channel lending, amid concerns about mounting risks in the sector.
The China Banking and Insurance Regulatory Commission (CBIRC) outlined a target of cutting the total outstanding value of trust-financing products by another 1 trillion yuan ($155 billion) this year.
For years, the trust industry has played an important role in shadow banking by providing loans to higher-risk companies and those with difficulty obtaining credit from banks. But the authorities have become increasingly concerned about the potential risks in the once-freewheeling and lightly regulated sector following a series of scandals and defaults involving billions of yuan.
Among the most high profile are Sichuan Trust Co. Ltd., which failed to repay investors more than 20 billion yuan, and Shanghai-listed Anxin Trust Co. Ltd., which was found to have a 50 billion yuan black hole in its books.