First-tier cities aiming to cut housing leverage

By Wang Jiamei Source:Global Times Published: 2016-3-11 0:03:31

Authorities concerned about growing risks: reports

People queue up at a Shanghai real estate trading center to complete house purchase documents on March 1, 2016. Photo: CFP

Local governments in China's first-tier cities are planning measures to rein in the rise in financial leverage in local housing markets, which have become overheated in recent months, media reports said Thursday.

In order to get an overall picture of the financing products being used and the amount of lending the city's Internet financing companies have offered to local homebuyers, the Association of Shanghai Internet Financial Industry issued a notice on Wednesday requiring member companies to submit their data regarding loans for down payments and any other highly leveraged lending by Thursday, financial news portal reported Thursday.

The move came on the heels of a meeting held by the Shanghai Municipal Development and Reform Commission on Tuesday, which discussed measures aimed at cooling the soaring prices in the local housing market, with the participation of the Shanghai Housing and Urban-Rural Development Commission, the Shanghai Banking Regulatory Commission and the Shanghai branch of the People's Bank of China, said a report Thursday by the Guangzhou-based 21st Century Business Herald newspaper.

During the meeting, authorities proposed stepping up scrutiny over leverage-related business, and prohibiting property agencies and peer-to-peer (P2P) platforms from offering loans for down payments, the report said, citing unnamed sources who are close to the matter.

Other measures considered at the meeting included tightening the mortgage rules for buying a second home and reinforcing the city's home purchase restrictions, according to the sources.

Huang Qifan, mayor of Southwest China's Chongqing, said earlier this week that in addition to mortgage loans by banks, some property developers and agencies are now offering homebuyers loans to cover their down payments, leading to an actual down payment of 5 to 10 percent of the home value and even as low as zero, according to media reports. Huang also warned that zero down payments were the origin of the US subprime crisis.

"If China allows high leverage in the housing market, it could lead to a financial disaster," Huang was quoted as saying. He added that destocking of housing inventory should not be achieved by increasing financial leverage.

"Financial products like loans for down payments artificially enlarged the leverage in personal home purchases, which not only propped up home prices but also increased the risks in the financial sector," He Jun, a senior research fellow at Beijing-based private strategic think tank Anbound Consulting, said in an e-mail sent to the Global Times on Thursday.

Shanghai is the third city after Shenzhen and Beijing to start paying closer attention to the leverage situation in the local housing market.

On March 4, the Shenzhen authorities announced that the local real estate market was overheated and that leverage-related businesses should submit data to be checked. Media reports also said on Wednesday that a similar check was implemented in Beijing over highly leveraged loans.

Stimulus dilemma

Home prices in first-tier cities including Beijing, Shanghai and Shenzhen have soared since the rollout of a slew of stimulus measures in early February, including a tax cut on property transactions and reductions to the minimum down payments for first- and second-time homebuyers.

"Those stimulus measures were supposed to help reduce inventories of unsold housing in third- and fourth-tier cities. But instead, housing markets in first-tier cities, which aren't in need of destocking, got a real boost, and little effect was seen in smaller cities," said He from Anbound.

"The central government is trying to reduce debt levels and lower financial risks for banks by reducing the housing inventories, but increasing financial leverage to boost real estate development is not the right tool for it," He noted.

According to Xue Jianxiong, a real estate industry commentator, China's housing market is caught up in a dilemma, giving authorities limited leeway to act.

"With the high inventory problem remaining in third- and fourth-tier cities, the authorities cannot announce any measures to cool down the housing market in first-tier cities immediately, because it would hurt market sentiment in other cities," Xue told the Global Times on Thursday.

"Officials have been warning repeatedly of the financial risks from high leverage in the housing market in recent days, hoping that P2P platforms and agencies recognize the risks and correct their behavior by themselves."

Posted in: Economy

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