Window guidance, balance control, frequent fines... real estate trust has become the key word of the trust industry in 2019. With some projects overdue, the market's cautious attitude towards real estate trust products has become increasingly obvious. Many investors have expressed concerns about the payment situation, the adequacy of the collateral and the disposal time.

Faced with the increasing number of overdue trust projects, doubts about the risk control of trust companies are also emerging. Does this mean that real estate trusts, one of the main businesses of trusts, will "fail to recover" from now on? What is the deep meaning behind strict supervision?

In the view of many industry insiders, the recent frequent redemption crises of real estate trusts are more related to the market environment and policy fundamentals. The real estate industry has experienced multiple rounds of policy regulation, and most trust companies can basically control the risk control conditions. As a supplementary financing method, real estate trusts that have undergone strict supervision are more suitable for stabilizing housing prices and stabilizing expectations, and appropriately controlling the pace of growth. In addition, as the trust enters a critical period of transformation, the existing real estate business is also expected to become one of the important footholds.

Real Estate Trust Dilemma

Real estate trust is the main business of trust companies, and clear guarantees and mortgages have become its key advantages.

As the housing sales market continues to cool, whether the collateral continues to be of sufficient value and whether it takes too long to dispose of it has also become a concern for most investors who have experienced overdue real estate trust projects. Some investors clearly expressed such concerns to reporters.

Industry analysts believe that currently real estate companies are generally facing a tightening of financing. Some real estate companies have tight cash flow and are unable to repay previous trust loans, and some are even on the verge of bankruptcy. In addition, the absolute scale of trust maturity volume this year is still at a historical high, and the distribution of maturity volume shows a pattern of first low and then high, and risk exposure in the real estate field is likely to accelerate.

Wang Hua (pseudonym), a staff member of a third-party agency, told reporters that real estate developers generally use projects under their names as collateral for financing, but in the event of a default, the disposal and realization of the collateral often takes a period of time. time, and may also face discounts.

“There are more and more trust projects that are in the disposal period and delayed.” Wang Hua told reporters that there are many cases where a company defaults and involves more than a dozen institutions, including many trust companies.

Yan Yuejin, research director of the Think Tank Center of E-House Research Institute, said in an interview with a reporter from the International Finance News that most risks of real estate trust projects are related to the housing sales market. If the market conditions are good, the problems are generally easy to resolve; on the contrary, if the market continues to cool down, it will often cause more problems.

“Especially for projects related to commercial and office projects, such as unfinished projects, low rental returns, etc., and the financiers are unable to obtain some supplementary funds, this will have an impact on project payment, which requires Be wary of related risks," Yan Yuejin added.

So, how to resolve risk projects related to real estate trusts?

Li Hua (pseudonym), an employee of a trust company, said in an interview with reporters that from the perspective of a trust company, in most cases, there is no question of whether someone will take over the disposal of collateral for overdue real estate trust projects. The problem, the key is price. During the period when regulation is still relatively strict, the market generally lacks liquidity, and assets are difficult to sell and are likely to face discounts.

“For trust companies, once the discount is large, they will face problems that they cannot handle.” Li Hua added.

However, Li Hua also told reporters that from the perspective of ordinary fixed income products, trusts can basically be understood as products that can be redeemed or have potential redemption expectations. "Even if some projects are delayed for a long time, they will not be disposed of in the end and will cause investors to suffer losses. The problem may be gradually solved in the next few years."

“Overall, the industry’s risk exposure is not very large.” Li Hua further said that no matter what the situation of the project is, the trust has always performed the duties of the manager.

Diverse risk control methods

From the process of communicating with investors, the reporter noticed that in the face of more and more overdue trust projects, there are doubts about the risk control of trust companies. The sounds kept coming.

In fact, many people in the trust industry told reporters that the recent frequent redemption crises are more related to the market environment and policy fundamentals.

Liao Hekai, an analyst at Jinle Functional Trust, said in an interview with reporters that the risk exposure of trust project parties has a great relationship with the entire economic environment. In essence, the trust or the entire financial industry belongs to the risk management industry.

“Finance has to deal with all walks of life, so risks will also be concentrated in the financial industry.” Liao Hekai further told reporters that under such circumstances, the management, control and resolution of risks are more important. Especially important.

“Even for the same business, different financial institutions will have their own risk control standards for reference.” Liao Hekai further told reporters that from the perspective of the entire asset management industry, trusts can basically be regarded as relevant procedures. The field with the highest degree of completeness and maturity.

“The complexity of counterparties requires trusts to have a variety of risk control methods. Overall, in terms of transaction structure, some system designs are relatively innovative.” Liao Hekai added.

Li Hua told reporters that from the perspective of real estate trust business, current risk control measures mainly include list system, pledge, capital supervision and post-investment management. "Collateral is the main factor in the tendency, but it is not the decisive factor. Not all collaterals have good qualifications. It still needs to be considered based on the level of each company's risk control logic. Generally, the risk control determines the weight of the collateral." .

“Generally speaking, after the real estate industry has experienced rapid development, real estate companies have entered the stage of accelerated differentiation from competing for land. The understanding of the industry and the selection of cooperative entities have become the key to risk control of trust companies’ real estate business. One of the core links," Li Hua told reporters.

In addition, compared with previous rounds of regulation, this round of policy regulation has some differences.

Liao Hekai told reporters that judging from the previous rounds of regulation, the real estate industry as a whole is still significantly upward, so it may not take long for the relevant pledges to be realized, and the price is relatively considerable. However, under the current background of strict regulation and expected collection of real estate taxes, the upward trend of the entire industry is not particularly obvious. In addition, combined with the impact of multiple policies such as the gradual withdrawal of the housing reform policy, third- and fourth-tier cities will also be significantly affected. "As for the projects that the trust has already invested in in the early stage, how to deal with them later is actually more critical."

“The real estate industry has gone through multiple rounds of policy regulation. Most trust companies can basically grasp the risk control conditions, and the logic of doing business has often gone through multiple rounds of demonstration.” Liao Hekai emphasized.

Significant shrinkage

In the second half of the year, the scale of real estate trusts has experienced "shrinkage". Data from Yongyi Trust Network shows that the scale of collective trust establishment in November was 106.751 billion yuan, a significant decrease of about 41% from 180.833 billion yuan in the same period last year. Among them, 21.383 billion yuan was invested in real estate, a sharp drop of nearly 68% from 66.049 billion yuan in the same period last year.

In fact, since the second half of 2019, the scale of trust issuance in the real estate field has shown a significant downward trend.

Specifically, Yongyi Trust data shows that among the trusts issued in the real estate field from January to June 2019, the monthly scale in 5 months was more than 80 billion yuan, and the scale in June It even exceeded 100 billion yuan; and from July to November, the monthly scale was less than 80 billion yuan.

At the same time, data from the China Trusteeship Association showed that as of the end of the third quarter of 2019, the balance of trust funds invested in real estate was 2.78 trillion yuan, a decrease of 148.067 billion yuan from the second quarter and a month-on-month decrease of 5.05%. This is the first time since the fourth quarter of 2015 that the quarter-on-quarter growth rate of new additions has been negative.

Li Hua told reporters that real estate trusts were relatively popular in the first half of this year, but faced strict supervision in the second half of the year, which formed a sharp contrast.

In May, the China Banking and Insurance Regulatory Commission issued the "Notice on Carrying out the Work of "Consolidating the Achievements in Combating Chaos and Promoting Compliance Construction" (referred to as the "Notice").

According to the requirements of the "Notice", financing is not allowed to be provided directly to real estate development projects that have incomplete "four certificates", the qualifications of the developer or its controlling shareholder are not up to standard, and the capital is not fully in place, or through "equity financing" Provide financing in disguised form by means of "investment + shareholder borrowing", "equity investment + debt subscription", accounts receivable, income rights of specific assets, etc.; provide financing directly or in disguised form for real estate enterprises to pay land transfer prices, directly or in disguised form for real estate Enterprises issue working capital loans.

Subsequently, under the background of "housing is for living, not for speculation", real estate trusts experienced a "relay-style" regulatory regulation.

In July, the head of the relevant department of the China Banking and Insurance Regulatory Commission stated that in order to strengthen risk prevention and control in the real estate trust field, the China Banking and Insurance Regulatory Commission has launched a series of measures to target some trust companies whose real estate trust business has grown too fast or too large recently. The interview warned that these trust companies are required to control business growth and improve risk management and control levels. Immediately afterwards, news came out that the trust company’s real estate trust business would be subject to balance control.

At the same time, according to media reports, the regulatory authorities have unified the release standards for real estate trust business. Second-level qualifications for real estate trust business will not be able to penetrate the two layers, which means that Sun companies with second-level qualifications will not be able to carry out trust business. loan.

Regulation continues to be upgraded. In August, the China Banking and Insurance Regulatory Commission issued the "Notice of the Trust Department of the China Banking and Insurance Regulatory Commission on further improving trust supervision work in the second half of the year" (Trust Letter [2019] No. 64) (hereinafter referred to as "64 "No."), conveying the regulatory focus of the trust industry in the second half of the year.

According to the requirements of "Circular No. 64", monitor the changes in the real estate trust business on a monthly basis, promptly conduct supervisory interviews, on-site inspections, suspend part or all of the business, revoke the qualifications of senior executives, etc. Measures should be taken to resolutely curb the excessive growth and excessive accumulation of risks in real estate trusts.

The implications of strict supervision

Many trust practitioners told reporters that, in fact, the supervision of real estate trusts is within a relatively large logical and ideological framework. So, what exactly is the meaning of strict supervision?

Senior trust researcher Yuan Jiwei told reporters that real estate trusts have experienced strict supervision, but they are not completely banned. It is more appropriate to stabilize housing prices and stabilize expectations when the early growth is too fast. control the pace of growth. "After all, the real estate industry has a great impact on both national economic growth and residents' wealth."

“Avoid over-investment of funds in one field. Too high a concentration will also lead to relatively large risks. This is also one of the reasons.” Yuan Jiwei further said.

Liao Hekai analyzed to reporters that in 2019, regulatory controls on real estate trusts will be greater than in previous years. In fact, this type of policy is not limited to the trust sector. Among the sources of funds in the entire real estate industry, trust can only be said to be a supplementary financing method. "There is a certain reason why there is a separate emphasis on trust. Judging from past situations, when banks tighten financing for the real estate industry, if trust opens up again, the effectiveness of the policy will be weakened to a certain extent." .

Wang Cheng (pseudonym), a medium-sized trust practitioner, told reporters that the strict regulatory situation can be said to be "unprecedented", which is also closely related to the environment faced by the current macroeconomic and financial markets. In a stage where risks are prone to occur, strict supervision is necessary and is conducive to the long-term and stable development of the industry.

“Although in the short term and individually, regulation will bring certain pressure on the operating performance of trust companies, in the long term and as a whole, strict supervision will have a negative impact on the trust industry, the real estate industry and even the national macro economy. It’s very necessary,” Li Qi added.

Liao Hekai also told reporters that stricter supervision is of great significance to both the development of the real estate industry itself and the maintenance of the stability of the financial system.

Specifically, if too many resources are invested in the real estate sector, investment in other departments will be squeezed, which will in turn hinder the long-term development of the real estate industry. Considering the characteristics of the industry, real estate will most likely achieve long-term development based on the good development of other industries. Otherwise, instability will occur, which will have an impact on the financial system.

Some analysts believe that in the long run, the real estate industry is still an area with room for development, but it has passed the period of rapid development and entered a relatively mature stage. The subsequent stock market will generate new business opportunities, and eventually the return rate of the overall real estate industry will level off, but according to the characteristics of the industry, it will still be slightly higher than the return rate of the traditional industry.

In fact, many people in the trust industry told reporters that judging from the scale of existing business, real estate trust may become a foothold for trust transformation.

Take REITs (real estate investment trust funds), one of the transformation directions, as an example. Although the trust is still in the "dominant" real estate primary market, the business volume of REITs is still very small, but once it enters the real estate market The industry has entered the stage of stock game, and trusts may actively intervene.

In view of the current low rental return rate problem faced by REITs business, Liao Hekai believes that this may change in the future. The essence of deleveraging is to return to the value of the asset itself.

On the other hand, from the perspective of the trust itself, the biggest advantage lies in cross-market operations. Returning to the roots means not only limited to fund trust management. As real estate is an important part of my country's household assets, from the perspective of the stock market, trusts still have many opportunities.