Chinese banks being tempted into residential leasing market
China Construction Bank first of country’s big four to make serious commitment, with others lining up to follow
China Construction Bank, China’s second-largest commercial bank by assets, has made its first foray into the country’s residential leasing market – a sector with solid state endorsement and which has already attracted surging interests from banks, developers and asset managers.
The lender’s Shenzhen branch has signed agreements with 11 developers, including majors China Vanke, Evergrande Group, China Merchants Property, to help it lease some 5,481 units of rental homes currently on the books. The new service will also provide tenants with loans to pay rent.
The specific terms, including average lease lengths and loan rates, have not been revealed, but according to Shenzhen Evening, a local newspaper, most the available properties will be wholesale provided to major Shenzhen company employees, including electric car maker BYD, China Fangda Group, the leading curtain wall manufacturer, and more than 70 tech firms.
“CCB has become the first of the “big four” state-owned banks to support the official policy of promoting the residential leasing market, which is being viewed as both a pilot and a benchmark for others to follow,” said Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute.
China Citic Bank has already aligned with Country Garden, the second-largest developer in China, to offer a total of 30 billion yuan (US$4.52 billion) in credit over the next three years for the development of more rental-only flats.
An industry insider told South China Morning Post that several other Chinese banks are now preparing their own plans to follow CCB and Citic’s lead, including China Minsheng Bank and Agricultural Bank of China.
The source, who asked to remain anonymous, said the banks’ interest in the rental market comes after they found they were increasingly being blocked from providing mortgages to home buyers as part of ongoing government clampdown on speculative buying and efforts to cool down the property market, leaving rentals as a new growth point for the banking industry.
Medium- to long-term loans to households, mostly mortgages mostly mortgages, increased by 4.2 trillion yuan in the first nine months of this year, according to China Banking Regulatory Commission, a level unchanged from the same period last year.
By contrast short-term loans tripled to 1.53 trillion yuan, in the hope of fuelling momentum to one of the industry’s top expansion priority for banks, the source said.
The new rental loans are to be classified as consumer credit, in the hope of fuelling momentum to one of the industry’s top expansion priority, the source said.
Unlike mortgages, banks will not ask for any collateral for rental loans but by lending to such high-profile names such as BYD and China Fangda, they hope those kinds of corporate heavyweights would offer ample guarantees for their own employee borrowing.
Yan warned, however, the new business could potentially be misused to buy homes, as other forms of the consumer credit sector has been, so supervision will have to be strict.
“Cooperation with big employers would reduce that risk,” he said.
Tian Guoli, CCB’s chairman, said at a ceremony announcing its support for the scheme, that CCB issued its first mortgage in China back in 1985 in Shenzhen, and has since built a solid reputation as a leading mortgage business leader.
The bank has already set up two specialised residential leasing service companies in Shenzhen to manage the latest venture, and an app has been created to make the process as seamless as possible.
It has also formed a partnership with the Guangdong provincial government to jointly build a regulatory and trading platform for home leasing, and provided its first home leasing loan to a Foshan-based house leasing firm on November 2.
Various Chinese governments have already announced blueprints to encourage the development of underdeveloped residential leasing markets across the country, including the scaling-up of land sales for rent-only home developments, tax breaks for residential service firms, and the promise to grant tenants equal rights to homeowners.