WHY PROPERTY PRICES ARE RISING
WHY PROPERTY PRICES ARE RISING
The trust companies are often at the heart of these new kinds of money flows, operating in a murky domain where the official banking system meets the shadow banking system. The trust companies cater largely to two groups of clients: Private companies that need capital and cash-rich families in search of higher returns.
The trust companies and other shadow institutions are particularly active in the politically sensitive real estate market. Informal money flows are a big reason why property prices continue to rise.
Across China, money continues to flow into apartment blocks, gleaming office towers and shopping malls. Since developers cannot borrow money from banks until they own the land, many need to raise funds elsewhere. As they are willing to pay upwards of 10 per cent for the privilege, that sort of return attracts lots of interest from those with a surplus to invest.
So when Banyan Tree, a Singapore-based resort company, was looking to raise a 1.1-billion-yuan fund for China, it turned to established entrepreneurs and high-net-worth individuals whom it tapped through wealth management consultants. “Institutional investors in China are not mature enough to understand the concept and give us their money,” says a Banyan Tree executive. “Wealthy entrepreneurs can make decisions very quickly.”
Virtually everyone has a stake in keeping the game going and turning a blind eye to edicts from Beijing. Since the trust companies are supposed to be simply intermediaries and cannot collect deposits from retail customers, Beijing is not all that bothered about them, bankers say.
Banks themselves take advantage of less-regulated institutions, shifting loans off their balance sheets by selling them to the trust companies, which slice them up and distribute them to their clients. That enables the banks to make more loans. “Innovative tools can make credit simply not appear,” says Ms Helen Qiao, an economist with Goldman Sachs in Beijing.
Meanwhile, local governments rely on land sales to fund their own operations. So they are happy to ensure developers have the capital to bid extravagantly at land auctions. Local governments in many cases own the trust companies that help developers finance their purchase of the land, taking fees in the process. Finally, senior municipal bureaucrats are often among those who have the money and are seeking high returns.
Source : TODAYonline – MediaCorp Press Ltd’s copyright
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