Issuance of asset-backed securities (ABS) products for real estate financing has seen robust growth since 2015. According to data by the Asset Management Association of China (AMAC), a total of 24 such products have been issued to date, including five quasi-REIT products, eight ABS products for property management fees, eight ABS products against the rights to receive operating incomes, and three mortgage balance ABS products.
Outstanding among those is the China Universal AMC Capital – Shimao Asset-Backed Specific Plan (ABSP) on Mortgage Balance, the first ABS product for mortgage balance in China that was listed for trading on the Shanghai Stock Exchange (SSE) on 8 December 2015. Underlying the ABSP is the mortgage balance payment (i.e. balance payable by a home buyer using mortgage financing) receivable by the project units of Shimao Group in tier-1 and tier-2 Chinese cities. According to China Chengxin International Credit Ratings, the issuer rating and the senior debt rating on the ABSP are both “AAA”.
The Shimao ABSP is a financial innovation with benefits in two ways: on the one side, it not only helps Shimao Group access low-cost funding, but also enables the group to make more efficient use of its existing assets (mortgage balance), thereby optimizing its financial structure; on the other side, the ABSP represents a new type of low-cost wealth management product on the capital market, benefiting both investors and homebuyers indirectly. The ABSP is another demonstration of the notion that any asset that can generate stable cash flow can be securitized. It also gives great impetus to the development of real estate finance in China, with its remarkable market popularity pointing to the significant potential of asset securitization in real estate.
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Liu Xiaoming is a senior partner at Long An Law Firm, based in its Beijing headquarters. He can be contacted on +86 10 6532 0366 or by email at xiaoming@longanlaw.com
Yang Kun is a Shanghai-based senior partner at Long An Law Firm. He can be contacted on +86 21 6085 7666 or by email at ykun406@longanlaw.com
