Macquarie joint venture - the first foreign player into the Shanghai mortgage market

25 March 2002

Macquarie Bank has entered into an agreement with China’s largest mortgage lender, China Construction Bank (CCB), to become the first foreign company to provide mortgage pre-settlement and title registration services to the rapidly expanding Shanghai residential market.

The business, Macquarie Securitisation Shanghai Co.,Ltd (MSS) will initially be focussed on the Shanghai market for existing residences and will distribute home loan products through a network of  approximately 1,500 to 2,000 small to medium-sized real estate agents.  MSS is a  joint venture with former Australian Prime Minister, Paul Keating. 

Loans will be funded by and written on CCB’s balance sheet and MSS will process loan applications (information collection and verification) in accordance with CCB underwriting criteria and loan parameters. MSS will also undertake post settlement services such as the registration of the mortgage on the title. 

The head of Securitised Lending at Macquarie Bank, Tony Gill, said Macquarie has been a long term player in the China residential mortgage and securitisation market having signed its first Memorandum of Understanding for cooperation with CCB in 1997. 

“Macquarie has always been a focussed player in the mortgage and securitisation market in Australia, where our preferred strategy is to lead the market rather than follow existing players. This approach has paid off in China where we are fortunate to have formed a close relationship with one of China’s leading banks, CCB.” 

“Not only are they the dominant mortgage player in the market but their support for our relationship at the most senior levels of the executive and their commitment to working with us on mortgage origination and securitisation has been unwavering over the past 5 years.” 

“There is huge potential in the market and CCB’s mortgage book alone has grown to RMB190 billion (A$50 billion) in less than 6 years. CCB’s target for 2002 alone is to generate RMB55 billion in new loans. While the returns from the business initially are not forecast to be large, it is an important step in gaining a foothold in the potential of the Chinese market ,” said Mr Gill. 

Paul Keating said he was very pleased to be partnering Macquarie Securitisation in this project and to be working with China’s largest mortgage provider, the China Construction Bank. 

“Reform of the housing industry, including the expansion of private housing, is one of the most important contemporary developments in China.  Housing is set to play a central part in the Chinese economy, and the Chinese government understands that more effective, easier, financial services, including mortgage handling, will be critical to the growth of private housing and the improvement in living standards which will come with it. 

“MSS will be a good example of the capacity of the best Australian companies to work creatively and cooperatively in Asia.  Australia is one of the most innovative providers of financial services. 

“MSS is the culmination of several years of hard work on all sides.  I believe we are seeing the first step in what will be a significant, long-term, business of value to both Australia and China,” he said. 

Private housing was introduced into China in the mid-1990s and since that time the secondary market for housing has grown rapidly along with the private ownership of real estate. In the first half of 2001, sales to individuals increased by 47 per cent on the same period the year before. 

Over 101 million square metres of new housing has been built in Shanghai over the last 10 years and this represents 21 per cent of the city’s investment in fixed assets over that period. Over 3.8 million people have moved into new homes over the past 5 years. 

In 2000 over 8 million square metres of property changed hands in the secondary market compared to 14 million in the primary market, although forecasts are for the number of transactions in the secondary market to outstrip those in the primary market over the next few years. 

The government is introducing measures to accelerate the growth of the secondary market. For example the transaction levy on secondary market homes has been significantly reduced and the restriction on selling properties within 3 years of acquisition has been removed. 

Macquarie Bank’s association with the Shanghai property market extends back to the mid 1990s, when the Bank established a series of funds to invest in the construction of affordable housing in the China market. To date Macquarie has been involved in the construction of more than 3000 apartments in Shanghai and Tianjin. 

Commenting on Macquarie’s China business expansion, the Australian Consul General in Shanghai Mr Sam Gerovich said: "The launch of Macquarie Securitisation Shanghai Co., Ltd is a further example of the increasingly diverse range of Australian business activities in China, taking advantage of market growth and new opportunities flowing from China's WTO entry.  The Australian Consulate General Shanghai and Austrade have been actively working with Macquarie, and other Australian financial service providers, to expand Australia's presence in these newly opening areas of activity in the China market.” 

Recently Macquarie and Schroders Asian Properties LP signed a Memorandum of Understanding to create a joint venture funds management business specialising in  Shanghai residential property development. 

The joint venture is aiming to develop 6000 apartments over six to ten projects during the next five years and will be seeded with Macquarie’s 14.25 % stake in the successful and ongoing Waratah Gardens Project in Shanghai. 

Macquarie is developing and managing Waratah Gardens in conjunction with AMP Henderson Global Investors and a local partner.

Tony Gill
Head of Securitised Lending at MBL
Tel: 61 416 066 066

James Casey
Securitised Lending at MBL
Tel: 61 410 634 945

George Lee
Macquarie Securitisation Shanghai Co., Ltd
Tel: 86 136 0164 1200