Chinese house prices in large tier one cities have been heating up, on the back of further monetary policy easing from the People’s Bank of China (PBOC), a surge in new lending, and a preference among investors to take on increased exposure to the property market over stocks.
In Shenzhen, the sprawling metropolis in the nation’s south, prices have risen over 50% in just 12 months. In Shanghai, prices jumped by 24% in the first two months of the year.
It’s amazing. And alarming.
With signs that a new property bubble may be forming, Chinese regulators – perhaps after the horse has bolted – look like they’re about to take action to slow the rampant growth.
According to Bloomberg, regulators plan to impose new rules to end the practice of allowing home buyers to take out loans to cover down-payments for property purchase, something that they hope will reduce risks that are building in the tier one property market.
Yes, you read that correctly: they are proposing banning investors from borrowing their down-payment to secure the additional lending to finance their property purchase.
“The rules will bar lenders including developers, housing agencies, small-loan companies and peer-to-peer networks from offering loans for down-payments, said the people, who asked not to be named because the matter isn’t yet public,” Bloomberg reported. “Regulators including the central bank and the China Banking Regulatory Commission will also ask commercial banks to scrutinise mortgage applications and reject those where down-payments come from loans offered by such institutions, the people said.”
In a research note released by HSBC’s China research team last week, led by Zhi Ming Zhang, the bank suggested speculative forces in China’s property sector were being fuelled by not only easier monetary settings but also China’s flourishing shadow banking sector.
“The credit growth has fed into rising asset inflation, notably in property prices and especially those of first tier cities,” says HSBC. “There are signs that speculative forces are at play, aided by the credit boom, a flourishing shadow banking sector and P2P (person-to-person) financing.”
“One example is Lianjia, a large real estate agent. According to local media, the agent provided home buyers with private loans to make the down-payment that are raised through online P2P products. In this way the buyers are able to secure a much higher leverage ratio than with a normal bank mortgage, making the cost of speculation much lower,” said HSBC.
In the coming week’s China will release updated bank lending and property price data for February. In light of this announcement, it suggests that risks for both series are likely to the upside.
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