Bonds Backed by Rent Payments to Hit Interbank Market

(Beijing) — Securitized products backed by rental income from private homes will soon start trading in China’s interbank market.

China Merchants Shekou Industrial Zone Holdings Co. Ltd. has recently obtained approval to raise up to 20 billion yuan ($3 billion) from selling asset-backed notes (ABN) exclusively to financial institutions, the self-regulatory body National Association of Financial Market Institutional Investors (NAFMII) said in a statement on Monday.

The notes will be secured by the rental income from two high-end serviced apartment developments in the southern city of Shenzhen over the next 15 years, NAFMII said.

China Merchants’ move came at a time when the government has rolled out policies to encourage developers to build more rental homes amid soaring property prices. The country’s exchanges have been hosting quasi-real estate investment trusts (REITs), as well as securities backed by rent from private homes, although China Merchants’ securitized product will be the first that exclusively traded among financial institutions.

China Construction Bank is the sponsor and manager of the notes, the statement said.

According to the apartments’ website, they are located in the free trade zone of Shekou, and close to the vibrant commercial area. Target tenants are white-collar professionals, the website said.

“The debut of the first rental-housing ABN on the interbank market will help the housing market diversify its supply, setting a good example for the development of the market,” NAFMII said.

China vowed to diversify its housing supply during 19th National Party Congress in October, after years of urbanization that had caused home prices to soar. Experts said building more rental homes could help reduce property prices, especially in first-tier cities. Favorable policies have lured many developers to the rental market.

Poly Real Estate Group received the go-ahead to launch a quasi-REIT to raise 5 billion yuan in October, after Beijing-based China Young Professional Apartments was given approval to sell 270 million yuan in securities backed by rental homes on the Shenzhen Stock Exchange.

Contact reporter Pan Che (chepan@caixin.com)