Chinas banking regulator issued a warning on Wednesday that it would step up efforts to crack down on illegal fundraising activities in the real estate sector, particularly in the area of real estate trust and fund management.
Chinas banking regulator has already taken and will continue to take measures to keep real estate trust and fund activities in line with regulations and manage related risk. The regulator warned illegal fund-raising activities are being carried out through false investments and pyramid schemes that pose risks to investors and the financial system.
The regulator also asked the public to be vigilant to prevent illegal lenders from fleecing investors of their money. The bank regulator has further stated that they will investigate and prosecute people involved in illegal fund-raising activities.
The move is part of Chinas efforts to defuse the property bubble in cities where prices are out of reach for many ordinary people. While some provincial-level governments have put curbs on real estate purchases, the economic growth is largely propelled by increased spending on new construction.
Real estate trusts, or property funds, are one of the fastest-growing financing channels in China, although their actual size is much smaller compared to the banking system. Such funds allow developers to borrow money from investors for property projects, rather than traditional bank loans, and investors can be rewarded with yield from the projects.
Property funds are typically invested in existing real estate assets, such as residential, office and retail spaces, in order to generate rental income. They could also invest proceeds in other property projects, such as construction projects for infrastructure and residential housing.
There were more than 600 real estate trust companies in China by the end of 2018, with trust assets worth around 1.95 trillion yuan ($277 billion), according to a report by the countrys banking association.
Chinas banking regulator is also keen to encourage the development of real estate trust companies, which have the potential to assist developers in their liquidity needs. Analysts said that if the regulator maintains a balance between regulating the sector and promoting its development, the real estate trust industry will continue to rise.
The banking regulator has also noted that real estate trust companies should adhere to prudent and prudent operations, such as strengthening risk management, strengthening auditing and supervision, and strengthening information disclosure and investor protection. In addition, it said that real estate trust companies should ensure that their products are well-designed, not excessive, and adhere to the principle of absolute safety.
Real estate trust is one of four main financing tools for the real estate industry in China, the others being bank loans, private loans, and the capital markets. The growth of trust products has been slower in China than in many other countries due to the increased risk of many real estate projects.
As China moves towards a market-oriented economy, the banking regulator has stressed the importance of strengthening its regulations on real estate trust products. It is clear the regulator is taking steps to protect both investors and the people who put their money into this industry by seeking to improve transparency and oversight.
