With pressure from the government and declining demand for loans in property development, Chinese banks appear to shift their business towards the more risky home rentals business.

The forty major listed property developers in China received 45.1 billion renminbi ($6.4 billion) in financing in May, down 41 percent from a month earlier and the lowest level in a year, according to «Xinhua» news agency, which quoted real estate consulting firm Tospur. 

Local governments in China have rolled out various measures to rein in surging home prices. One of the ways applied to cool prices is to pressure local banks and insurers to accelerate the development of the local rental market. 

Pilot Programs at State Banks

The big state banks have pledged 3 trillion renminbi in rental house financing, which includes loans to developers, leasing firms and tenants, according to a «Reuters» report. China's rental market is estimated at a total 1.3 trillion renminbi.

China Construction Bank (CCB) provides loans to its borrowers at ultra low rates and long repayment periods under its pilot program. In Shenzhen, home renters can borrow as much as 1 million renminbi with no collateral and have up to a decade to pay back their loan.

Last year, both Industrial and Commercial Bank of China as well as Bank of China launched similar products in Guangzhou and Xiamen respectively. Both southern cities have been chosen by the central government to test real estate sector reforms.

Unattractive for Smaller Banks

Currently, only the large state banks have offered similar loans as small to mid-sized banks find these rates unattractive and the risks of default too high. A retail loan officer at one of China’s 12 joint-stock banks said his bank had decided not to offer the product, according to «Reuters». 

«We looked into it closely, but only to find that was not something we could afford – interest rates were just too low to cover the cost of funding,» the loan officer said, declining to be identified. «Only deep-pocketed large state banks can bear the cost.»

Big Funds Flow Into Rental Platforms 

Despite the slow loan growth for tenants at most banks, private funds hoping to take advantage of China's nascent rental market have propelled deals across Asia. Last month, Singapore's sovereign wealth fund GIC entered into a joint-venture with Nova, to set up a 4.3 billion renminbi rental housing platform in China, according to «Deal Street Asia». They hope to target tenants in tier one cities.

Earlier this year, room and rental firm Ziroom raised $622 million from Warburg Pincus, Tencent and Sequoia Capital China. Qingke, a startup focused on long-term rentals, raised more than $100 million in a Series C round led by a fund managed by Morgan Stanley PE Asia and Singapore-based Crescent Point.