Central Bank Moves Again to Curb Property Lending

(Beijing) — China’s central bank has instructed commercial banks in recently released credit policy guidelines to rein in fast-expanding mortgage loans, as authorities escalate their efforts to curb soaring housing prices.

Under the guidance notes issued to branches of the People’s Bank of China (PBOC), the bank asked its local offices to guide commercial banks in their jurisdiction to control the pace of mortgage loan issuance, improve their credit structures, strengthen scrutiny on capital sources and the payment capacity of borrowers, and assist local housing inventory cuts with appropriate credit policies.

The PBOC also asked its branches to adjust local credit policies regarding the ratio of mortgage down payments, rate discounts and the maximum period that homebuyers are permitted to pay back mortgages — all in a bid to control rapid flows of bank credit to the property sector.

A source close to the central bank told Caixin that the bank is looking to control the rapidly expanding ratio of mortgage loans in China’s new loan issuance, which reached 80% in some cities by late last year.

Data from the central bank showed that China’s total loan issuance reached 12.65 trillion yuan ($1.83 trillion) in 2016, of which nearly 45% was mortgage loans.

Housing prices in China have witnessed a sharp rise led by big cities since last year, triggering concerns over bubbles forming in the property market. Nationwide, average new-home prices in 70 major cities rose 11.8% in February from the previous year, according to Caixin calculations based on data from the National Bureau of Statistics.

In Beijing, average housing prices rose to 60,700 yuan per square meter in February from 52,500 yuan per square meter in October, an increase of 15.6%, according to data released by the Chinese Real Estate Industry Association.

A central bank survey released on Tuesday showed that 52.2% of urban households believed property prices were “unacceptably high” in the first quarter.

In a recent economic forum in Beijing, Vice Premier Zhang Gaoli said the government is trying to prevent risks in the property sector. “There could be property bubbles if we do not handle the situation well,” Zhang said.

Jiang Chao, chief economist at Shanghai-based Haitong Securities, said excessive credit supply was the main factor pushing up housing prices.

A recent report issued by UBS estimated that Chinese banks’ outstanding loans extended to the property industry were between 54 trillion yuan and 72 trillion yuan in 2016 — or about 23% to 31% of the banking industry’s total assets — which stood at 232 trillion yuan at the end of last year.

During the first quarter of 2017, 21 cities across China imposed restrictive measures such as raising down-payment ratios and purchase quotas to cool the overheating housing market. Some banks have already begun to curb mortgage lending to homebuyers in major cities like Beijing.

Contact reporter Han Wei (weihan@caixin.com)