May 11, 2012 02:22 PM

Asset Managers Say 'In Real Estate We Trust'


(Beijing)–China's distressed property market has been spread like a banquet before the nation's asset management companies (AMCs), but a regulator apparently doesn't want anyone gorging.

Four state-run AMCs – China Cinda Asset Management Co., China Huarong Asset Management Corp., China Orient Asset Management Corp. and China Great Wall Asset Management Corp. – have gobbled up real estate trust holdings amid a two-year slowdown in the new-home market.

AMC sources say real estate-related assets have grown rapidly since 2010, the year the government started a campaign to control housing prices by tightening developer credit and reining in speculation.

Today, the management firms' combined real estate credit holdings may be worth 50 billion yuan.

So enthusiastic were the asset managers that the China Banking Regulatory Commission (CBRC) stepped in last year to restrict their investments in troubled assets. A source said CBRC saw fit to curb AMC appetite for trusts and wealth management products tied to real estate.

AMCs are cooperating, and so far the CBRC has stopped short of extending a ban on AMC investments in non-financial arenas to include real estate trusts, which are set up to raise money for property development in China. Cinda is the only AMC with permission to bail out non-financial entities.

A Cinda executive said the AMCs, which the government created in the 1990s to take over non-performing bank loans, got involved in real estate trusts in part to support the nation's "real estate price adjustment and cushion" the economy against a possible wave of property company failures.

AMCs don't want to lose money, the executive said, but recent stress tests found they can take a hit if necessary – especially if in the process their operations contribute to the government's efforts to cool the property market.

The stress tests "assumed a 40 to 50 percent reduction in property prices," the executive said. "We can afford this."

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