By Dai Qi
Asset-backed securities (ABS) on long-term rental apartments in China are expected to see tighter regulations due to their high leveraging that might lead to financial risks, the China Securities Journal reported on Wednesday.
It is a way of fund-raising, used by real estate enterprises, agencies or operators, which takes the property rights of the apartment, expected rentals or rental loans as the underlying assets.
According to statistics from the Golden Credit Rating International, a major credit rating company in China, as of Aug. 21, eight ABS long-term rental apartment orders, worth 9.807 billion yuan, had been issued.
With the rapid growth of ABS on long-term rental apartments in China, some people blame it for the surge in housing rental costs. Financial risks hidden behind the high leverage brought by the ABS on long-term rental apartment also arouse big concerns.
Hu Jinghui, former vice president of 5i5j.com, one of China's largest commercial real estate agencies, said risks were inevitable in the status quo where capital was involved in bringing about leveraging in the housing rental market.
The leveraging he referred to is the so-called ABS in a broader sense.
ABS on long-term rental apartments consists of many types, among which the one that creates a debtor-creditor relationship between tenants and trust institutions is thrown into serious doubt.
Insiders said ABS could provide long-term rental apartment enterprises about half-a-year or nine-month rentals as a pool of assets that could be allocated, which allow them to expand and seize more market shares.
Yin Zhentao, an expert on law and finance from the Chinese Academy of Social Sciences, said that ABS on long-term rental apartments was reasonable in nature, legally speaking.
"But we could see problems in actual operations. As a result, tighter regulations could be in sight that might suspend some types of businesses or raise the standard," Yin said.
