Trust Firms Call Off Real Estate Financing Products

Trust companies have started to pull back their real estate financing businesses as regulators tighten grip on loans to developers to curb risks in the property market.

Leading trust firm China Everbright Trust said Thursday afternoon that it would withdraw products released after noon to raise funds for property investment. Investors in the products will be refunded. Several people close to the company confirmed the development.

Separately, Citic Trust Co. is also making refunds to investors in a trust product for property investment sold through China Merchants Bank, sources told Caixin. China Merchants declined to comment on the matter.

The canceled products are all collective trust vehicles that raised funds to invest in the real estate sector, Caixin learned. Everbright and Citic took the move as part of adjustments to their real estate financing businesses according to regulatory requirements, said sources who prefer not to be named.

The China Banking and Insurance Regulatory Commission (CBIRC) last week summoned 10 trust companies to a meeting, requiring them to get the scale and growth of their property financing businesses under control, Caixin has learned.

The regulator told the companies to ensure there is no growth in the outstanding amount of their real estate financing businesses at least through this year’s third quarter, sources told Caixin.

The regulator’s guidance followed a May policy restricting trust companies in providing financing to unqualified property developers — those who didn’t obtain all necessary licenses or meet requirements on shareholders and capital.

Several trust industry sources told Caixin that the regulators only required companies to halt property financing businesses that fail to meet requirements, rather than suspending such business as a whole.

Trust companies’ real estate financing businesses have grown rapidly in recent years as other financing channels for developers are under tight control. At the end of the first quarter, the outstanding amount of real estate investments made by trusts reached 2.81 trillion yuan ($410 billion), or 14.75% of trusts’ total, according to data from the China Trustee Association. Trusts’ investments in real estate in the first quarter were up 14.18% at the end of last year and 10.99% at the end of the first quarter of 2018.

Ming Ming, bond analyst at Citic Securities, said although financing from trusts constitutes only a fraction of developers’ funding, the tightening rules will have an impact on other institutions’ sentiment. Effects of the tightening may start to show on developers and land market in the fourth quarter, he said.

Contact reporter Han Wei (weihan@caixin.com)