China encourages RMBS to boost housing market

(ECNS) – China is making forays into residential mortgage-backed securities (RMBS) to amp up its sagging property market, the Economic Observer reported.

On Sept 30, the People's Bank of China (PBOC) and China Banking Regulatory Commission issued new housing rules, including mortgage easing and a green light for banks to issue mortgage-backed securities (MBS).

MBS lets banks package mortgages into securities and sell them to investors. Money from smaller lenders would become more available to home buyers with banks acting as middlemen.

"I think encouraging MBS is the most important part of this policy," said Jiang Xun, chief economist at a Chinese think tank, referring to the financial instrument's ability to free up capital for lending and potentially making it easier for home buyers to obtain loans.

Statistics show that the country's individual home loan balance has reached 10 trillion yuan ($1.6 trillion), a huge potential pool for MBS.

Ouyang Jie, deputy director of Future Holdings, a leading real estate developer listed in Hong Kong, said the rule would help beef up real estate financing.

"Many developers, especially small and medium-sized ones, faced cash problems in the first half of the year," Ouyang said. "The major cause isn't home purchase curbs imposed by the government, but the fact that banks are too cautious in lending."

There are worries too, however. Products with short terms and high yields have been prominent in the Chinese market, and MBS, which usually has a maturity of 10 years or longer, may find it hard to lure investors, at least at the early stages.

The Economic Observer learned that many state-owned banks and commercial banks are studying plans of possible products, but there's no timetable for official launch yet.