China caps mortgage loans to ward off housing bubbles

[Hamartia Antidote]

China caps mortgage loans to ward off housing bubbles

Financial regulators reverse course on coronavirus-era easing

asia.nikkei.com

Financial regulators reverse course on coronavirus-era easing

Visitors are seen at a real estate fair in Huaian, Jiangsu province. China is attempting to rein in a real estate bubble that has erupted in cities. © Reuters
IORI KAWATE, Nikkei staff writerJanuary 1, 2021 02:44 JST

BEIJING -- China on Thursday ordered banks to cap loans to homeowners and property developers, the latest effort by the government to rein in a real estate bubble that has erupted in cities.

The directive, which applies only to Chinese lenders and not international banks operating in China, will go into force Friday.

The biggest banks, such as the Industrial and Commercial Bank of China and the China Construction Bank, will face a new cap of 32.5% of all outstanding loans that can be lent as home mortgages.

Medium-sized banks, such as China Merchants Bank, now have a 20% cap, while the smallest village and town banks will only be allowed to lend out 7.5%, according to a joint statement from the People's Bank of China and the China Banking and Insurance Regulatory Commission.

Loans to real estate companies will be limited to 40% for the top tier and 12.5% for the lowest, according to a five-tier ranking.

The new mechanism represents a reversal from the financial easing policies put in place to counter the fallout from the coronavirus outbreak. But given the fragile economic recovery, regulators are not expected to go as far as raising interest rates.

Banks whose balance of home-mortgage loans exceed the assigned caps as of Thursday have been told to lower the balance in phases. Those less than 2 points above the ceiling are given a two-year grace period to bring the level below the threshold. Banks surpassing their caps by 2 points or more are granted a four-year window.

Chinese leaders are moving to rein in real estate bubbles that could threaten financial stability. (Photo by Iori Kawate)

This year, Chinese regulators eased up on financial controls so that banks can extend loans to small and midsized enterprises. As a result of that decision, a froth of money flowed into the real estate market, causing a bubble in urban condominium prices.
In places like Shenzhen, where newly built properties are subject to strict rules, such units have been resold almost immediately after bidding, according to a real estate industry source. Demand has boiled over to the point that some pre-owned units are fetching higher values on the market than new properties, the source added.

During this month's Central Economic Work Conference, a gathering of Communist Party leaders that plots the economic blueprint for the next year, the real estate bubble was painted as a "pronounced problem" that needed to be resolved.
Real estate is meant to be lived in, not a target for speculative investment, the conference concluded. Policymakers vowed to take appropriate measures in all cities to promote "stabilized growth" in property markets.

To that end, authorities have also cast a wary eye on real estate companies that have expanded their scale through leverage. The PBOC and other regulators plan to fully apply capital fundraising controls that limits new bank loans in proportion to the size of debt held by developers.

The financial market had been anticipating the PBOC, the central bank, to revise financial easing policies that have led to the real estate bubble. But the consumer price index for November undershot the year-earlier reading for the first time in approximately 11 years.

Although the Chinese economy has more or less normalized from the effect of the coronavirus, household income has been slow to recover, which has weakened resilience in consumption.

China's financial policy will carefully pursue the normalization route while keeping an eye on the recovery of the household sector and other parts of the economy. The measures concerning the property market will for the time being likely focus on stronger curbs on lending rather than tightening interest rates.

 

[52051]

The government always try to put a lid on property market, unlike the wild west US when every fraud is free for all.

Its really hard to have a bubble in China, for instance, in Beijing where the city I lived, nowadays: you can at most own two properties, and you have to pay most of the house you bought by cash (thats mean pay millions of USD in cash), loan plays a minor role for most buyers, in some of the hot and newly opened properties, sales just reject buyer to take any loan outrightly.

 

[Dark1]

The government always try to put a lid on property market, unlike the wild west US when every fraud is free for all.

Its really hard to have a bubble in China, for instance, in Beijing where the city I lived, nowadays: you can at most own two properties, and you have to pay most of the house you bought by cash (thats mean pay millions of USD in cash), loan plays a minor role for most buyers, in some of the hot and newly opened properties, sales just reject buyer to take any loan outrightly.

So why has the Chinese government taken this action to limit the loans in your informed opinion ? Without any reason ?

 

[KurtisBrian]

So why has the Chinese government taken this action to limit the loans in your informed opinion ? Without any reason ?

look at how the limits are set up. Cities get the big percentages. Villages and towns get tiny percentages. It is about keeping the debt based fraudulent wealth in the cities and out of the hands of rural folks. Keeping the REAL farmers poor allows the lying thieving live on endless credit corporate freemason/shriner/Prussian/Dutch Mafia type farmers to steal all the land. Just like the thieves did in Europe, the UK and Ireland.

FACT is no matter what China does nobody is moving to China. No matter what the UK, Europe and the USA do they cannot put the world economy back together again. Humpty Dumpty sat on a wall..... this time it is banksters golems not Kings men.

 

[Globenim]

So why has the Chinese government taken this action to limit the loans in your informed opinion ? Without any reason ?

Why is making an planed and educated decission before things can go out of controll not a valid reason when China does it, in your informed opinion? Any particular reason?

 

[Dark1]

Why is making an planed and educated decission before things can go out of controll not a valid reason when China does it, in your informed opinion? Any particular reason?

Well the guy claimed its not possible in China to have a property bubble because loans are not popular. The Chinese government obviously disagrees.

 

[Globenim]

Well the guy claimed its not possible in China to have a property bubble because loans are not popular. The Chinese government obviously disagrees.

Well "the guy" clearly said "Its really hard", which makes your "obvious" conclusions not a given. Its obviously among other reasons and conditions exactly these precautious measures that make it harder for bubbles to foster. Thats their whole purpose. Why do you say he claimed "its not possible". Any particular reason?

 

[Dark1]

"The guy" clearly said " Its really hard", which makes your "obvious" conclusions not a given. Why do you say he claimed "its not possible". Any particular reason?

Semantics. Carry on.

 

[-blitzkrieg-]

The government always try to put a lid on property market, unlike the wild west US when every fraud is free for all.

Its really hard to have a bubble in China, for instance, in Beijing where the city I lived, nowadays: you can at most own two properties, and you have to pay most of the house you bought by cash (thats mean pay millions of USD in cash), loan plays a minor role for most buyers, in some of the hot and newly opened properties, sales just reject buyer to take any loan outrightly.

And that pushes many Chinese people to invest outside. I heard many North American/European consortiums owned by Chinese people who accumulate their little savings and purchase a big property in North America/Europe under that consortium and then share dividends when they decide to sell several years later as per a mutually agreed agreement. And then they repeat the process till they have enough to buy a property back home or outside..

 

[52051]

And that pushes many Chinese people to invest outside. I heard many North American/European consortiums owned by Chinese people who accumulate their little savings and purchase a big property in North America/Europe under that consortium and then share dividends when they decide to sell several years later as per a mutually agreed agreement. And then they repeat the process till they have enough to buy a property back home or outside..

Well, never heard of that, I think someone may do this, but definitely not at a meaningful scale:

(1) First of all, China's property market grows at a much faster pace comparing to most of the rest world so, the dividend they get through investment in oversea property wont cover the rise of price of domestic property, so once the money is out, they need to invest in area which has much higher ROI to make it possible to invest back at China's property market.

(2) China has tight control of both incoming and outgoing cash flow, its not that easy to invest your money oversea and it is not that easy to get the money oversea back home. For example, the cap of USD you can take and covert into RMB is just $50,000 or so per year, that's not enough to buy any property in China, saving for probably the one in the most rural place.

There are quite some people in China who has invested in oversea property market, a lot of them are just not well-informed: They believe the oversea property market can grow as much as these in China, and they think the oversea property is cheap, so they buy them, and some others buy property for the simple reason that they want to immigrated to that country ( there are some European countries open immigration through property investment route, the ads are all over China).

 

[ozranger]

look at how the limits are set up. Cities get the big percentages. Villages and towns get tiny percentages. It is about keeping the debt based fraudulent wealth in the cities and out of the hands of rural folks. Keeping the REAL farmers poor allows the lying thieving live on endless credit corporate freemason/shriner/Prussian/Dutch Mafia type farmers to steal all the land. Just like the thieves did in Europe, the UK and Ireland.

FACT is no matter what China does nobody is moving to China. No matter what the UK, Europe and the USA do they cannot put the world economy back together again. Humpty Dumpty sat on a wall..... this time it is banksters golems not Kings men.

The reality is a lot of westerners are living in China and they have tons of videos and even live streaming showing you what China actually looks like. Check YouTube you will see it.

Regarding China's real state market and Canadians,

 

[CAPRICORN-88]

Statistics show that 95% of all Chinese live in their own properties inside China and 98% of the poor live in their home.

So this new regulation won't really affects any one of them except for those who wish to speculate in housing property like in Hong Kong and elsewhere.

IMO it is a good law although the foreign as well local speculators won't be happy.

 

[xuxu1457]

I'm going to buy a second house. But the recent policy may not rise here, we are hesitant to buy.
Now the house price here is 11000 RMB （1700$）per square meter. Mainly in order to control prices, such as large bank loans to only allow 35% of the maximum access to House loan.

 

[-blitzkrieg-]

Well, never heard of that, I think someone may do this, but definitely not at a meaningful scale:

(1) First of all, China's property market grows at a much faster pace comparing to most of the rest world so, the dividend they get through investment in oversea property wont cover the rise of price of domestic property, so once the money is out, they need to invest in area which has much higher ROI to make it possible to invest back at China's property market.

(2) China has tight control of both incoming and outgoing cash flow, its not that easy to invest your money oversea and it is not that easy to get the money oversea back home. For example, the cap of USD you can take and covert into RMB is just $50,000 or so per year, that's not enough to buy any property in China, saving for probably the one in the most rural place.

There are quite some people in China who has invested in oversea property market, a lot of them are just not well-informed: They believe the oversea property market can grow as much as these in China, and they think the oversea property is cheap, so they buy them, and some others buy property for the simple reason that they want to immigrated to that country ( there are some European countries open immigration through property investment route, the ads are all over China).

sorry for the late reply..i kind a missed this

Property booming at the pace in Hongkong is different from how it would in a remote place in China or lesser known cities and they might be less appreciating than some where in the world like Melbourne, London or California.
Secondly your govt. might have setup a limit but lets admit it a lot of water goes under the gate unchecked or ignored...There is always an informal section of economy and they survive this way.