What’s new: China’s chief banking regulator warned that a “too dramatic” correction in the property sector could damage the economy and said a smooth transition would be more desirable.
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told reporters at a briefing Wednesday that recent property price adjustments and changes in the structure of demand are for the financial sector by reversing a bubble momentum in real estate financing.
Guo also warned of a large proportion of bank loans in mortgages because many people buy homes not to live in but to invest or speculate. “If housing prices fall in the future, or something else goes wrong, it will be a huge financial crisis,” Guo said.
The banking chief took his own housing purchase as an example. When he applied for a mortgage from China Construction Bank more than 20 years ago, approval took six months, Guo said. But now the process has gone to the other extreme and banks rush to offer mortgage loans, he said.
The background: Since December 2020, China has tightened banks’ real estate lending by capping outstanding property loans as a proportion of total loans and the ratio of outstanding mortgages to total loans. Developers have been facing fundraising difficulties under the “three red lines” policy, which sets bottom lines for developers’ liabilities-to-assets ratio, net debt-to-equity ratio and cash-to-short-term debt ratio.
As a result, China’s property market cooled, and a number of big developers including Evergrande Group defaulted on bonds, rattling markets.
China’s real estate market continued a downward spiral in the first month of 2022 as total sales of the top 100 property developers fell 39.6% year-on-year by value. China Real Estate Information Corp., the consultancy that compiled the data, said sales could shrink further in February.
Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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