Tongkong Investment relies on group strength for survival as real estate financing sector toughens
Chairman Zhang Baoguo says the days when lenders could earn fat margins without much risk, as property prices continued to rise, are long gone
Zhang Baoguo, the chairman of Tongkong Investment Group, is predicting that only private equity (PE) firms with strong parent companies and distinctive niche markets will be able to survive the downturn in China’s real estate financing industry.
Under the government’s directive to curb China’s property market, domestic banks shut their doors to medium and small-sized developers from 2010-11, creating a lucrative industry for non-bank financial institutions such as trusts, private equity funds and peer-to-peer lending platforms.
Pooling their money from yield-hungry wealthy individuals or the sale of wealth management products, these institutions could easily make money by lending to cash-hungry developers.
But the days, says Zhang, when lenders could earn fat margins without much risk as property prices nationwide continued to rise, are long gone.
No single asset type can compete with property in terms of withstanding shock, and having room to appreciate. I see no chance of a collapse in China’s property market in next five to ten years
He adds that loosening banking credit to developers and the emergence of the corporate bond market have dramatically broadened funding channels, and slashed costs, leaving many funds struggling to spot viable projects.