Caixin
Apr 22, 2020 04:11 AM
FINANCE

Update: Business Relief Loans May Have Flowed Into Shenzhen Property Market

Shenzhen’s housing prices have led tier-1 Chinese cities since March. Photo: IC Photo
Shenzhen’s housing prices have led tier-1 Chinese cities since March. Photo: IC Photo

A recent usual surge of housing prices in China’s southern city Shenzhen raised red flags for regulators who started a probe into whether relief loans to small and micro businesses amid the Covid-19 pandemic flowed into the property market.

Banks were asked to withdraw such loans if they find the funds were used to invest in properties in violation of regulations, the Shenzhen Bureau of the China Banking and Insurance Regulatory Commission (CBIRC) said.

The CBIRC bureau didn’t specify the criteria for banks to withdraw business loans. But the agency denied market rumors that all business loans approved after Jan. 25 using as collateral properties bought within less than six months would be withdrawn.

Caixin learned that one focus for the check on relief loans is on collateral acquired in the previous six months. A Shenzhen banker said banks are screening loans, and the final regulatory measures will depend on the results of the review.

Shenzhen’s housing price rally has been leading tier-1 cities in China since March. New condo prices rose by 0.5% in March from the previous month, and existing condo prices grew by 1.6% on a monthly basis, three times the national average among the biggest cities, data from the National Bureau of Statistics shows. Price growth effectively stalled in February because there were hardly any housing sales as people stayed home.

Now the Shenzhen property market has a relatively high leverage rate, mostly because small businesses use their current properties as collateral to get cheap loans and invest in the housing market, according to a senior executive at the Shenzhen office of real estate brokerage Lianjia.

China has significantly increased credit support to the economy, mainly to help struggling small businesses hit by the coronavirus outbreak. With the stimulus discount, companies can get collateralized business loans at interest rates as low as 2%, compared with 3.9% to 4.5% normally, the Lianjia executive said.

The Shenzhen branch of the central bank issued an internal notice Monday to commercial banks operating in the city, requesting them to report the outstanding amount of such business loans, check the authenticity of the borrowers’ operating conditions, when their businesses were founded and for how long they owned the properties used as collateral for the loans.

Banks are required to submit such information Monday to the central bank, Caixin learned.

The Shenzhen Bureau of the CBIRC and the Shenzhen branch of the People’s Bank of China convened a meeting Monday with the heads of the commercial banks in the city. A senior official at the banking regulator told Caixin that banks were told at the meeting to strengthen management to make sure small and micro business loans can’t be invested in the housing market. At the same time, such control measures shouldn’t hamper the support to small businesses.

The Shenzhen housing bureau said over the weekend that the recent property rally was mainly triggered by pent-up demand after the lockdown during the height of the coronavirus epidemic, but speculation by real estate agents and social media might have heightened price expectations. The housing bureau said it would take “serious measures” against illegal price hikes.

Most recent housing transactions in Shenzhen were for higher-priced condos bought by second-time home buyers, said He Qianru, chief analyst with property brokerage Midland Holdings China. The buyers put their business loans into the property market mainly as a flight to safety, and recently loosened lending policies made it convenient for them to do so, she said.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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