China Crackdown on Real Estate Trusts Following Scandal

iFeng: 坚持“房住不炒” 银保监会严查房地产信托！
Sogou: Insist on "Housing Not to be Fired" Bank Insurance Regulatory Commission Closely Inspects Real Estate Trust!

It never rains but pours.

Recently, the whole real estate market has been greatly impacted. The main impact comes from Xincheng Holdings. The scandal of its chairman has caused the listed companies of "Xincheng Series", whether listed in Hong Kong or listed in A shares, to drop to a limit or even to fall off a cliff. The market value has evaporated by more than 40 billion yuan. People have great doubts about the continuation of the capital chain behind it.

China Banking Regulatory Commission Interviews Trust Companies

At the same time, China Banking Regulatory Commission began to interview trust companies, demanding that over-expanded trust companies restrict investment in real estate.

This background can actually last until last month. Guo Shuqing, chairman of the China Insurance Regulatory Commission, made a clear analysis of the real estate market at the Lujiazui meeting last month and drew two conclusions. One is that the debt of Chinese residents has reached an unsustainable level and the burden is heavy. Second, more than half of the new loans are now mortgages, which is also unsustainable, indicating that the financialization of real estate has become very serious.

In fact, the bank has already done layers of control, and has a certain degree of restriction on developers and mortgages. Therefore, in the end, everyone found a trust company to bypass the bank when looking for funds. As a result, the trust company's business in the past two years has mainly been mortgage loans or real estate development. At present, the CIRC will also control these fast-expanding trust companies for interviews and once again strengthen the wind control over the entire market.

The trust companies interviewed this time include Zhongrong Trust (the largest trust company in China), AVIC Trust, Jiangsu Province International Trust, Wanxiang Trust, Xingye Trust, Jiaoyin International Trust, Everbright Trust, Minmetals Trust, Berry Trust and Guotong Trust. Except Zhongrong Trust, other trust companies are professional trust companies or trust companies with relatively limited scale. The more such companies are, the more radical their business development in real estate tends to be.

Therefore, the CIRC has put forward five requirements for these trust companies: first, strictly implement the real estate market regulation policy and the current real estate trust supervision requirements; Second, improve the level of risk management and control to ensure that the scale and complexity of the business matches its own capital strength, asset management level and risk prevention and control capability. Third, raise the awareness of compliance, strengthen the construction of compliance and ensure the steady development of real estate trust business. Fourth, control the growth rate of real estate trust business and keep the growth rate and increment of real estate trust business at a reasonable level. Fifth, improve the entrusted management ability, actively optimize the real estate trust service mode, and provide professional and characteristic financial services for real estate enterprises. After all, the most important thing for these requirements is to control the growth rate of real estate trust.

Regulatory layer strictly controls risks and promotes development

Real estate trust, in fact, is a real estate fund trust, which refers to the act that the client entrusts the legally owned funds to the trust and investment company, and the trust and investment company invests the funds into the real estate industry and manages and disposes of them.

Real estate trust can not only bring benefits to clients, but also is one of the financing methods in China's real estate industry. Because China's real estate development funds are mainly self-raised funds and other funds, of which the deposit and advance payment account for the highest proportion, and the rest are mainly financed.

Real estate business is an important part of trust investment. From June 2018 to June this year, the monthly establishment scale of real estate trust has ranked first in collective trust for 13 consecutive months, becoming an important business for trust companies.

Judging from last year's data, although the overall scale of the trust industry is declining, the scale of real estate trust is rising against the trend. By the end of May, the balance of real estate trust assets was 3.15 trillion yuan, accounting for 14% of the total trust assets. An increase of 166.597 billion yuan over the beginning of the year, up 15.15% year on year.

In short, the real estate trust business is growing too fast, which has attracted the attention of the CIRC. For some trust companies that rely on real estate trust business, the performance pressure in the second half of the year will be greater. As for the real estate sector, the market generally expects that the financing environment for housing enterprises will be further tightened and the pressure on capital will be further increased. As far as the market is concerned, strong supervision is helpful to promote trust companies to return to their original sources, optimize their structure and transform. However, short-term pain in the market is inevitable.