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Aiming to aid the embattled Chinese real estate sector, state-owned China Construction Bank Corp (CCB) is setting up a 30 bn yuan ($4.2 bn) fund to finance rental housing projects. The real estate fund will be fully backed by capital from CCB and will ‘invest in existing assets’ of real estate companies.
Back in July, Reuters reported that China is launching a 300 bn yuan (~$42 bn) real estate fund to help property developers resolve the debt crisis. A People’s Bank of China (PBOC) source had told the news agency that CCB will contribute 50 bn yuan to the first tranche of the fund, following which other banks would join in.
Features of CCB’s real estate fund
The real estate fund by CCB will invest in existing real estate projects and turn them into affordable rental units. The fund has a duration of 10 years, with a possible extension.
CCB, among China’s biggest banks, says the fund will help the bank explore new growth models for the real estate sector. The real estate sector has plunged into darkness after China tightened rules for lending from banks in a bid to reduce debt risks.
However, the property sector has slumped to its worst due to a lack of liquidity as the debt-fuelled growth in China comes to an end. Real estate developers are dwindling revenues due to fewer sales while a mortgage boycott and protests over unfinished projects have caused a nationwide crisis. The financial sector is also facing the brunt of the crisis and is experiencing slow credit growth.
Chinese authorities have stepped up to resolve the real estate crisis through a series of measures. Back in April, the PBOC reduced the cash reserve requirement ratio to flood the market with liquidity and spur economic growth.
In May, Chinese banks reduced the five-year loan prime rate, a reference for mortgage rates, by a record 15 basis points. This was on top of the PBOC’s 20 bps reduction in the floor for mortgage rates. Shortly after, China rolled out a 142 bn yuan tax rebate scheme and 300 bn yuan of railway construction bonds. Local governments were also asked to step up efforts to aid real estate developers by accelerating bond sales.
The Chinese central bank cut its key interest rates by 10 bps in August, a move which should increase the attractiveness of loans. Facing the mortgage boycotts and protests, the PBOC said it will provide special loans worth 200 bn yuan to certain property developers so they can forward stalled projects.
CCB’s real estate fund follows similar initiatives by China’s policy banks and local governments who have been setting up funds to aid cash-strapped property developers. China is focusing on the real housing market to ensure sustainable growth in the real estate sector over the long term and CCB is leading the charge in this effort.
