China likely to expand mortgage bonds to lift property market

The mainland is poised to expand mortgage bonds to lift its slumping real estate market.

Officials will likely allow banks to sell commercial mortgage-backed notes for the first time by the end of the year after reviving securities tied to home loans last year, according to China Merchants Securities and China Chengxin International Credit Rating. The offerings, which help banks boost mortgage lending by freeing space on balance sheets, will grow "substantially" this year, China Credit Rating said.

Premier Li Keqiang eased home-purchase rules after new housing prices slid in many cities across the mainland in February. Authorities, who halted securitisation in 2009 after subprime mortgage bonds triggered the global financial crisis, are returning to such offerings to spur an economy growing at the slowest pace since 1990.

"The launch of commercial mortgage-backed securities may send a strong policy signal because it will give banks more space to lend money directly to property developers," said Zuo Fei, a Shenzhen-based director of structured finance at China Merchants Securities, underwriter of the first residential mortgage-backed securities deal this year. "The regulators are trying to improve property purchases in a gradual and an appropriate way."

In 2011, mainland banks began to curb home lending to prevent a real estate bubble from bursting. Lenders originated 494.2 billion yuan (HK$626.4 billion) in new property loans in the first two months of this year, 0.6 per cent higher than the same period last year, the statistics bureau said on March 11. That compares with 27 per cent annual growth for all bank lending.

"As the property bubble ballooned, Chinese banks have curbed real estate lending," said Zhang Yingjie, Beijing-based deputy general manager in the research department of China Chengxin International. "Selling mortgage-backed securities can help banks transfer the risk of the loans to buyers of the products."