Shanghai to Sell $1.1 Billion Bonds Backed by Public Home Loans

  • The product is the first such ABS on interbank market
  • The move can boost home sales and ease property inventory

Shanghai plans to sell 6.96 billion yuan ($1.09 billion) of bonds backed by local government-managed funds that provide mortgages as China seeks to boost home sales and clear a nationwide property oversupply.

Shanghai Provident Fund Management Center plans to issue the securities on Dec. 4, according to statements on the Shanghai Clearing House website on Friday. The notes are the first asset-backed securities backed by housing fund loans to be offered in China’s interbank market, according to Zhou Yue, a Shanghai-based bond analyst at China Merchants Securities Co.

The move underscores local governments’ push to replenish housing funds that lend money to homebuyers at a cheaper rate than bank mortgage loans. China has allowed property companies to sell more bonds in the onshore market as the government seeks to avert the worst economic slowdown in a quarter century.

“The reform on housing funds would be the most effective approach to sell out the home inventory,” said Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. “By allowing buyers to borrow more, it can raise buyers’ purchasing power and not impact the whole financial market like interest-rate cuts do.”

Individuals contribute money to their local housing provident funds, which are held by cities. In Shanghai, Beijing and Shenzhen, public housing funds collected have been almost fully lent out every year, according to research firm China Real Estate Information Corp.

The bonds will be sold in two parts, with 5.02 billion yuan first and the rest in a second batch, according to the statement. Shanghai Pudong Development Bank Co. will be the lead underwriter, the statement said.

The ABS sale shows the government’s “support of the property market,” Zhou at China Merchants Securities said. “After Shanghai, more cities will follow.”

— With assistance by Judy Chen, and Emma Dong

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