China limits property loans to curb housing bubble

Loans to developers, property mortgages under new regulations

National Weekend Edition /
Jan.January 03, 2021 12:00 PM
(iStock)

(iStock)

In an effort to curb a possible housing bubble, China’s central bank has issued a new mandate for lenders: Limit the number of loans you’re offering.

The People’s Bank of China announced the new regulations, which will affect loans to both developers and property mortgages, earlier this week, Bloomberg News reported. The new regulations, issued along with the China Banking and Insurance Regulatory Commission, call for limiting loans to developers to 40 percent for state-owned lenders, while mortgages can make up no more than 32.5 percent of a bank’s outstanding credit. The new regulations took effect Jan. 1.

The idea is to make it easier for lenders to withstand any potential fluctuations in the housing market — something that’s been top of mind for industry experts, who have predicted the country is on the verge of a housing bubble that could burst.

After a rocky start to the year because of the Covid-19 pandemic, the housing markets in China’s largest cities have been on fire, with $1.4 trillion invested between June 2019 and June 2020. Housing prices have jumped, and buyers are snapping up properties at record rates.

Chinese buyers are also more heavily leveraged than they’ve ever been: In the first quarter of 2020, the household leverage ratio hit a record high of 57.7 percent.

Earlier this year, Chinese regulators also asked several of the country’s biggest developers — including China Evergrande Group and China Vanke Ltd. — to file monthly reports about their finances, including debt, in an effort to keep those developers from overleveraging their assets.

“The new policy is in line with the direction of strengthening supervision and preventing bubbles,” Chengyu Huang, an investment manager at China Cinda (HK) Holdings Co, told the publication. “That will further dampen investor sentiment toward the real estate stocks.”

[Bloomberg News] — Amy Plitt


Related Articles

arrow_forward_ios
Compass shares plummet, then recover in volatile morning after lockup ends
Compass shares plummet, then recover in volatile morning after lockup ends
Compass shares plummet, then recover in volatile morning after lockup ends
Berkshire Hathaway HomeServices CEO Christy Budnick (Berkshire)
Berkshire Hathaway HomeServices names new CEO
Berkshire Hathaway HomeServices names new CEO
(iStock)
Hot, hot, hot: Resi market sets new price records in March
Hot, hot, hot: Resi market sets new price records in March
(iStock)
Homebuilder sentiment ticks up in April
Homebuilder sentiment ticks up in April
Andrew Florance, CEO of CoStar Group (CoStar, Homes.com)
CoStar to buy Homes.com for $156M
CoStar to buy Homes.com for $156M
(iStock)
Mortgage requests, refinancings continue to drop
Mortgage requests, refinancings continue to drop
Howard Hanna CEO Helen Hanna Casey and Compass CEO Robert Reffkin (Howard Hanna Casey, Getty)
Howard Hanna accuses Compass of poaching agents, stealing trade secrets
Howard Hanna accuses Compass of poaching agents, stealing trade secrets
The effective rate was 1.1 percent, on average, in 2020, down from 1.14 percent in 2019. (iStock)
Homeowners’ property taxes grew twice as fast last year
Homeowners’ property taxes grew twice as fast last year
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...