Curbs Cool Down Shanghai Mortgage Fever

(Beijing) — Regulatory moves to cool the property market in Shanghai have resulted in slowing growth in personal mortgages and an increase in loans for developers.

The Shanghai branch of the central bank announced first-quarter lending data on April 14. Loans to property developers totaled 36.7 billion yuan ($5.33 billion), 26.7 billion yuan more than the same period last year, while personal mortgages in the city increased by 67.6 billion yuan, 24.1 billion yuan less than last year.

Regulators started to restrict financing to developers in the fourth quarter of 2016, prohibiting them from listing on the Hong Kong stock exchange and banning real estate companies from issuing bonds, which has seen them resort to more-expensive financing in the form of loans.

Around the same time, the People’s Bank of China (PBOC) ordered banks to adjust their lending structures to keep a tight rein on home loans. According to the annual reports of China’s four largest commercial banks, mortgages as a percentage of new loans averaged 70% in 2016. The government plans to reduce home loans as a percentage of new loans to 30% from 45% in 2016, according to central bank personnel.

Housing prices in China rose sharply last year, driven by loose credit policies intended to boost economic growth. Concerns of a property bubble grew as home prices rose as much as 60% for some cities in 2016. Average new-home prices in 70 major cities rose nearly 12% in February from the previous year, according to Caixin calculations based on data from the National Bureau of Statistics.

Several cities with particularly heated property markets imposed restrictive purchasing measures, including raising down-payment ratios and increasing restrictions on mortgages starting in the fourth quarter of 2016. Homebuyers have found ways to get around the curbs, such as through divorces of convenience to avoid higher down payments for second homes, or taking out consumer loans, which have lower requirements and interest rates. Regulators responded by further tightening rules. In Shanghai, banks were asked to step up scrutiny of income sources and prevent newly divorced couples from counting new-home purchases as first-home purchases.

Contact Liu Xiao (liuxiao@caixin.com)