China to crackdown on loans for property down payments to help cool overheating market, reduce risk of bad debts
PUBLISHED : Sunday, 13 March, 2016, 3:05am
UPDATED : Sunday, 13 March, 2016, 3:05am
Wendy Wu
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People's Bank of China Governor Zhou Xiaochuan announces a crackdown on loans made for down payments for homes. Photo: Simon Song
A crackdown is to be launched on the mainland against offering loans to pay for down payments on property.
The move to stamp out the loans would help cool the property market and reduce financial risks.
The crackdown will form part of government curbs on finance companies operating on the internet, the officials said.
People’s Bank of China Governor Zhou Xiaochuan (周小川) told a press briefing on the sidelines of the National People’s Congress that borrowing money to place down payments on property was not allowed and he questioned the right of internet peer-to-peer lenders to carry out the business .
“Funds used for down payments cannot be borrowed” he said.
Abuse of the system led to banks later offering loans to homebuyers without a clear picture of their clients’ real financial situation, said Zhou.
Vice-governor Pan Gongsheng said the central bank and other government departments would crack down on all abuse which evaded housing credit policies, including offering down payment loans.
“Property agencies and developers are not qualified to conduct financial business. They are illegally doing financial business,” he said. “This business they are engaged in, and jointly with peer-to-peer lenders and down payment credit firms, has not only raised the leverage of residents’ house purchases, worn down the effectiveness of macro policy controls and added to financial risks, but has also increased risk in the property market.”
Zhou said the real estate sector was under great pressure to sell unsold flats.
Prices vary greatly in different areas of the country, but have surged in first and second-tier *cities.
Local governments should play a bigger role in assessing the situation in their areas and come up with policies to guide local markets, he said.
The amount of unsold finished apartments rose by over 15 per cent last year compared with 2014 to more than 700 million square metres, said Zhou.
Pan pointed out that 70 per cent of unsold apartments were in third and fourth-tier cities.
In contrast, first-tier cities have seen a frenzy in house purchases and soaring property prices in recent months.
“Commercial banks should also make their own judgements and get to know clients, including their solvency and financial risks. Meanwhile, they should also consider local changes to make credit policy and assess risks,” said Zhou.
Pan downplayed the risk to property loans, saying the ratio of bad loans in the sector stood at 0.38 per cent.
That is well below an overall ratio of bad loans lent out by all banks of 1.7 per cent, he said. Property lending accounts for 14 per cent of overall bank loans, he added.
The level of down payments for buying first homes in January was above 35 per cent and over 40 per cent for second homes, said Pan.
Minister of Housing and Urban-Rural Development Chen Zhenggao said earlier this month that the government was paying the utmost attention to skyrocketing property prices in the nation’s four top cities.
He said the ministry was in close contact with the governments of Beijing, Shanghai, Guangzhou and Shenzhen which are trying to rein in the overheated real estate market.
