The regulatory crackdown designed to cool the housing market and prevent a bubble has opened the door to “shadow lenders”.
Shadow lending is a blanket term used to describe lending that takes place among nonbank financial institutions outside the scope of regulations.
The lenders, which include international hedge funds, are funding developers at more than double the interest rate for the same types of loans banks were providing a few months ago, reports Business Times.
“Effectively, the risk hasn’t changed, but the pricing today is about 12 percent, not the six percent that banks were charging 12 months ago – so you are getting very attractive spreads of almost double in this space,” Australian head of the Swiss-based Partners Group, Martin Scott, told Business Times.
Although there is no exact figures on the shadow lending market, the lenders are primarily targeting developers selling pre-sold apartments in unfinished projects.
“We are funding developers that have pre-approved projects with healthy profit margins that only lack a bank to finance them,” said Dan Simmons a partner with hedge fund OCP Asia.
Many developers see the higher cost of borrowing as offset by the continuing demand for property.
Source: Business Times