China Suspends Residential Real Estate Fund Approvals

INCREASING DEFECTS:
Suspension follows tightening of funding channels by regulators, including bank loans and fiat finance, as part of a campaign to reduce risk

China is shutting down private equity funds that raise money to invest in residential real estate developments, cutting the tap on one of the last stable funding avenues for the struggling sector.

The government-approved China Asset Management Association (AMAC) has verbally informed private equity firms that it will no longer accept registrations required to build funds to invest in projects, said. people familiar with the decision, asking not to be named because the case is private.

Requests that have already been made would also be denied, while existing funds would not be affected, the people said.

The suspension adds to challenges for Chinese real estate developers after regulators tightened funding channels, including bank loans and fiat finance, as part of a campaign in recent years to reduce risk.

Some of the country’s biggest developers, such as China Evergrande Group (恒大 集團), are grappling with massive debt accumulated during the boom years of the Chinese real estate market and the sector is currently driving a record increase in defaults on the market. Chinese bond market.

Yuzhou Group Holdings Co (禹 洲 集團) fell 6.2%, the highest in more than two weeks.

Evergrande has been one of the companies that has been battered by the funding crunch in recent months, losing 61% of its value this year.

As traditional funding channels were stifled, real estate companies turned to private equity funds backed by high net worth individuals and institutions to raise funds, often using land income or cash flow from the sale. of the project as a guarantee. Most real estate fund issuers are local businesses.

Investments in real estate-focused equity funds amounted to 843 billion yuan ($ 130 billion) in 2020, or 13.5 percent of the industry’s total, according to an AMAC report.

AMAC did not respond to requests for comment.

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