Property policies

China’s second-largest bank offers owners cash incentives to spur nascent rental market

China’s rental sector is ripe for growth, say analysts, as the government tries to ease house-price inflation by encouraging would-be buyers to rent instead.

PUBLISHED : Thursday, 21 December, 2017, 10:13am
UPDATED : Thursday, 21 December, 2017, 10:54pm

China Construction Bank (CCB), the country’s second-largest lender, is to offer homeowners a one-off payment in exchange for the right to rent out their property as it ramps up efforts to tap the government-backed rental housing market.

Analysts said the new service, reported on Wednesday in the 21st Century Business Herald, may herald a wave of new financial products from banks eager to capture a share of the rental segment. The government is drumming up support for the leasing market with a spate of incentives aimed at alleviating some of the pressure on house-price inflation by encouraging people to rent instead of buying.

“The rental segment is emerging as a huge ‘blue ocean market’, or uncontested market space, for banks to tap,” said Yang Yue, a banking analyst from China Zheshang Bank. It is an opportunity for lenders to expand their income channels with more services and products in a sector that is endorsed by official policy, he added.

The rental segment is emerging as a huge ‘blue ocean market’, or uncontested market space, for banks to tap
Yang Yue, analyst, China Zheshang Bank

Liu Jun, head of the Guangdong branch of CCB, said the bank aims to launch the new service on January 8 in Guangzhou in southern China, according to the 21st Century Business Herald. Homeowners will be able to sell their leasing rights for a fixed period, such as a five-year term, to the lender for a one-off rental payment, the newspaper reported. The bank can then rent out the property via designated agencies to individual tenants.

Calls from the Post to CCB’s Guangdong branch went unanswered, while a company spokesman said he was not yet aware of the new product.

China launched a pilot programme this year to build rental housing projects in 13 major cities, including Beijing and Shanghai. The Chinese government is offering incentives to give tenants the same benefits as homeowners, such as granting them equal rights to a place in a public school for their children.

“We expect more financial services to be rolled out to support the government-backed rental sector,” said Li Tong, an analyst at Shenwan Hongyuan Securities. “More banks may also tap the rental segment via sales of asset-backed securitisation or credit to fund rental projects.”

The new service from CCB is likely to appeal to homeowners as it will enable them to lease out their property long-term to what they see as a trusted, big-name lender, without having to worry about issues such as daily maintenance, according to Li.

Beijing-based CCB, the nation’s major property loans provider, has been something of a pioneer in the budding rental housing segment. It was the first bank to sign deals with 11 developers to help them lease more than 5,000 rental flats in Shenzhen.

Earlier this month, the bank also got the go-ahead to issue asset-backed notes worth 20 billion yuan (US$3.02 billion) in the country’s interbank market, in what would be China’s largest rental housing securitisation, to fund two rental projects in Shenzhen.

Other major state-owned banks have followed suit.

ICBC to offer 500 billion yuan worth of credit to spur home rental market in Guangzhou

Industrial & Commercial Bank of China, the nation’s biggest lender by assets, said in November that it would offer 500 billion yuan worth of credit to support the home rental market in Guangzhou.

And on Monday, Bank of Communications, the nation’s fifth largest bank, teamed up with 26 developers with a credit quota of at least 150 billion yuan to back the rental sector in Guangdong.