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% for state-owned lenders, while mortgages can make up no more than 32.5% 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%.
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.”
Source: Bloomberg News