China property

As mortgages grow scarce in China, homebuyers turn to car and college loans, firm says

Research company says new funding channel being used to circumvent government efforts to cool property market

PUBLISHED : Wednesday, 20 September, 2017, 6:29pm
UPDATED : Wednesday, 20 September, 2017, 11:46pm

Chinese borrowers are turning to a new funding channel to snap up ­properties – short-term consumer loans usually reserved for cars or an education – as the mortgage landscape continues to shrink, a research firm says.

According to E-House China R&D Institute, the amount of ­“irregular” consumer loans taken out since March reached 370 ­billion yuan (US$56.18 billion), with at least 80 per cent going ­towards property payments.

The biggest number of ­borrowers were recorded in Shanghai, and Guangdong, ­Fujian, Jiangsu, Sichuan and Hebei provinces, which saw high levels of irregular personal lending, according to the company.

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A spike should be accompanied by an increase in consumer sales, but retail figures have ­generally been flat, suggesting mainlanders were instead ploughing the funds into the real estate market.

“Home prices are so high in some big cities, buyers are being forced to seek consumer loans to fund their down payments,” said Zhao Yang, Hong Kong-based chief China economist at Nomura Holding.

“If consumer credit is tightened further, property prices may see a correction.”

Technically, banks should not allow borrowers to use the loans for home purchases. As early as 2010, the People’s Bank of China (PBOC) and the China Banking Regulatory Commission issued a notice banning such repurposing, but the rule was not strictly ­followed by lenders.

Authorities in Guangzhou in Guangdong province stepped up the pressure on local banks on Wednesday, releasing a notice banning the use of any kind of personal consumer loans for “home purchase down payment or repayment of down payment loans”.

The notice also prohibits banks from offering loans without specifying how the money is to be used, a maximum limit of one million yuan has been set, with ­repayment terms of no more than a decade.

That 300 billion yuan, ­however, is still tiny compared with total mortgage lending across the property market.

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Outstanding individual ­mortgage loans rose 30.8 per cent at the end of June, against a year ago, to 20.1 trillion yuan, according to the PBOC, but new loans have tightened in recent months to fend off what the government still fears is a growing credit and housing bubble.

David Ng, Macquarie’s head of China&Hong Kong research, said he was not surprised buyers had been using consumer loans in an effort to bypass the restrictions, with many being left with little other choice.

Developers were being forced to lower prices on some new projects under government ­orders, and some now required buyers to put down 80 per cent or more of the purchase price as a way of screening sales.

“Many new flats in first-tier cities now cost more than 10 million yuan. Even for those considered rich, it’s not easy to find 8 million yuan immediately,” Ng said.

Some cities, including ­Shenzhen and Beijing, called for a clampdown on using consumer loan for home purchase earlier this the year, but Nomura’s Yang said scrutiny was lax and he now expected more major urban ­centres to follow the lead of Guangzhou.

The PBOC said newly added short-term consumer loans had already reached 1.06 trillion yuan in the first seven months of the year, compared to 830.5 billion yuan for the whole of 2016.