Australia-based Macquarie Bank has entered into an agreement with China's largest mortgage lender, China Construction Bank (CCB), to become the first foreign company to provide mortgage pre-settlement and title registration services to the rapidly expanding Shanghai residential market. The business, Macquarie Securitisation Shanghai (MSS), will initially focus on the Shanghai market for existing residences and will distribute home-loan products through a network of about 1,500 to 2,000 small- to medium-sized real-estate agents. MSS is a joint venture with Australia's former prime minister, Paul Keating. Loans will be funded by and written on CCB's balance sheet and MSS will process loan applications (information collection and verification) in accordance with CCB underwriting criteria and loan parameters. MSS will also undertake post-settlement services such as the registration of the mortgage on the title. Macquarie Bank head of securitised lending Tony Gill said Macquarie had been a long-term player in the China residential mortgage and securitisation market, having signed its first memorandum of understanding for co-operation with CCB in 1997. 'Macquarie has always been a focused player in the mortgage and securitisation market in Australia, where our preferred strategy is to lead the market rather than follow existing players. This approach has paid off in China, where we are fortunate to have formed a close relationship with one of China's leading banks, CCB. 'Not only are they the dominant mortgage player in the market but their support for our relationship at the most senior levels of the executive and their commitment to working with us on mortgage origination and securitisation has been unwavering over the past five years.' Mr Gill said there was huge potential in the market and CCB's mortgage book alone had grown to 190 billion yuan (about HK$179.2 billion) in less than six years. CCB's target this year is to generate 55 billion yuan in new loans. While the returns from the business initially are not forecast to be large, it is an important step in gaining a foothold in the Chinese market. Mr Keating said reform of the housing industry, including the expansion of private housing, was one of the most important contemporary developments in China. He said housing was poised to play a central part in the Chinese economy, and the central Government understood that more effective, easier financial services, including mortgage handling, would be critical to the growth of private housing and an improvement in living standards. 'MSS will be a good example of the capacity of the best Australian companies to work creatively and co-operatively in Asia. Australia is one of the most innovative providers of financial services,' Mr Keating said. Private housing was introduced into China in the mid-1990s and, since then, the secondary market for housing has grown rapidly along with the private ownership of real estate. In the first half of last year, sales to individuals increased by 47 per cent compared to the same period the year before. Over 101 million square metres of new housing has been built in Shanghai over the past 10 years, representing 21 per cent of the city's investment in fixed assets over that period. More than 3.8 million people have moved into new homes over the past five years. In 2000, over eight million square metres of property changed hands in the secondary market compared to 14 million in the primary market, although forecasts are for the number of transactions in the secondary market to outstrip those in the primary market during the next few years. The central Government has already introduced measures to accelerate growth in the secondary market, such as significantly reducing the transaction levy on secondary market homes and removing the restriction on selling properties within three years of acquisition. To date, Macquarie has been involved in the construction of more than 3,000 apartments in Shanghai and Tianjin. Recently, Macquarie and Schroders Asian Properties LP signed a memorandum of understanding to create a joint-venture funds management business specialising in Shanghai residential property development. The joint venture aims to develop 6,000 apartments through six to 10 projects during the next five years, and will be seeded with Macquarie's 14.25 per cent stake in the successful Waratah Gardens Project in Shanghai. Macquarie is developing and managing Waratah Gardens in conjunction with AMP Henderson Global Investors and a local partner.
