Cashbacks on Down Payments for Home Purchases Hide Risks (AI Translation)
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文｜财新周刊 王婧
By Caixin Weekly's Wang Jing
在广东惠州，买房“零首付”不是秘密。比如惠城区某楼盘，当地中介为其打出的推荐语包括：“零首付”、送车位，再免五年物业费。楼盘销售经理称，一套合同价在105万至110万元之间的住宅，实际成交总价在84万至88万元之间。开发商会按照合同价帮忙支付两成首付款，购房者仅需后期月供。
In Huizhou, Guangdong, the concept of "zero down payment" for buying a house is not a secret. For instance, a property development in Huicheng District was marketed by local agents with offers including "zero down payment," a free parking space, and five years of waived property management fees. The sales manager of the development stated that for a residential unit with a contract price between 1.05 million to 1.1 million yuan, the actual transaction price would be between 840,000 to 880,000 yuan. The developer would cover the 20% down payment according to the contract price, leaving the buyer only responsible for the subsequent monthly payments.
据财新了解，惠州多个楼盘都在以“返首付”或低首付刺激销售，在个别区域，购房者只需支付不到5万元作为首付款，就能以按揭形式买下一套上百万元的房产。
According to Caixin, several real estate projects in Huizhou are stimulating sales by offering "cashback on down payments" or low down payment options. In certain areas, homebuyers can secure a mortgage for a property worth over a million yuan with an initial down payment of less than 50,000 yuan.
这一现象并非惠州独有。一名地产从业者告诉财新，在重庆渝北区，至少有十个楼盘以同样的优惠力度卖房。他提供的资料显示，多个项目的首付款仅为9.9元。广东东莞的情况与之类似。3月14日，东莞市房地产中介协会发文称，由于楼市低迷，不少在售楼盘纷纷打出“零首付”“低首付”的广告诱导购房者，另有部分中介从业人员在朋友圈大肆宣传“零首付”购房政策。协会指出这是违规行为，要求立即停止。
This phenomenon is not unique to Huizhou. A real estate practitioner told Caixin that in the Yubei District of Chongqing, at least ten property developments are selling homes with similar discounts. The information he provided showed that the down payment for many projects is only 9.9 yuan. The situation in Dongguan, Guangdong, is similar. On March 14, the Dongguan Real Estate Brokers Association issued a statement saying that due to the sluggish property market, many properties for sale have launched advertisements enticing buyers with "zero down payment" and "low down payment" schemes. Additionally, some brokers have been vigorously promoting "zero down payment" home buying policies on social media. The association pointed out that these practices are violations and demanded an immediate halt.
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- In Huizhou, Guangdong, and other parts of China, real estate developers and intermediaries are promoting "zero down payment" schemes to stimulate sales amid a sluggish property market. These practices include developers covering part of the down payment or offering significant discounts, leading to actual transaction prices being lower than the contract prices.
- The phenomenon of low or zero down payments is not unique to Huizhou but is also observed in cities like Chongqing and Dongguan. Regulatory bodies have deemed such practices as violations, highlighting risks including distorted transaction data and potential financial instability reminiscent of the U.S. subprime mortgage crisis.
- The real estate market downturn has led to developers cutting prices drastically to maintain cash flow, with some areas witnessing price drops over 20% within a year. Despite regulatory efforts to curb low down payment deals, these practices persist due to the current economic pressures on both buyers and sellers, raising concerns about long-term market stability and accurate data reporting.
In Huizhou, Guangdong, and other parts of China, the real estate market has seen a surge in "zero down payment" offers and other low down payment schemes as developers strive to stimulate sales amidst a downturn. These practices, while not widespread in major cities, have raised concerns about financial risks similar to those experienced during the U.S. subprime mortgage crisis [para. 1][para. 2][para. 3]. The Chinese government has set minimum down payment ratios to protect the banking system from potential defaults that could trigger financial instability [para. 4]. However, the pressure of declining sales and prices has led some local governments and developers to turn a blind eye to these risky practices [para. 5][para. 6].
The real estate market's downturn began in the second half of 2021 due to a liquidity crisis among developers, leading to significant price cuts. For example, in Huizhou's Linshen area, prices dropped by more than 20% within a year [para. 7]. Despite these price reductions, sales volumes continued to decline significantly from 2021 through 2023 [para. 8], prompting developers and agents to resort to aggressive tactics like "zero down payment" deals and high appraisal values for loans [para. 9][para. 10].
These practices are not only legally questionable but also distort market data and can mislead policymakers about the true state of the real estate market. They contribute to an environment where official statistics may not accurately reflect actual transaction prices or the extent of discounts being offered by developers [para. 11]. This discrepancy poses challenges for regulatory efforts aimed at stabilizing housing prices and ensuring financial stability.
The phenomenon of "high appraisal, high loan" transactions is particularly prevalent in second-hand housing markets where regulation is more challenging due to the dispersed nature of transactions. Agents often facilitate deals with inflated appraisal values allowing buyers to secure larger loans than warranted by actual property values [para. 12]. This practice increases risks for both banks and buyers should property values decline or if borrowers default.
Banks have begun responding by lowering appraisal values for properties in several cities since late 2023, aligning them more closely with declining market prices. This adjustment aims to reduce over-lending risks but also reflects banks' cautious approach given the overall slump in real estate transactions [para. 13].
Despite these challenges, China's major state-owned banks report that non-performing loan ratios remain relatively low for personal housing mortgages. This suggests that while there are concerns about financial stability due to risky lending practices, the banking sector still views residential mortgage loans as relatively safe assets [para. 14].
The article highlights calls within the industry for leniency towards "zero down payment" schemes as part of broader efforts to rescue the market. Historical precedents from 2008 and 2015 show that reducing down payment requirements can stimulate demand; however, current economic conditions mean many potential buyers remain cautious about committing to long-term mortgage obligations without confidence in future income stability [para. 15].
This situation underscores a complex interplay between regulatory policies aimed at maintaining financial stability and market dynamics driven by developers' need to boost sales amid declining demand. As China navigates this challenging period in its real estate market, balancing short-term interventions with long-term structural reforms will be crucial for achieving sustainable growth and preventing systemic risks.
- Before 2021：
- Real estate market in China experiences upward trend, with investors entering the market and down payment scrutiny being strict.
- Early 2021：
- Real estate market downturn begins, with sales volumes and prices falling.
- Mid 2021：
- Banks conduct strict scrutiny on down payment sources, requiring proof of income and household registration for parents' transfers.
- End 2021：
- Central bank and banking regulatory commission issue document lowering minimum down payment ratios for first and second homes.
- Early 2022：
- Real estate market continues to decline, with developers offering discounts and promotions to boost sales.
- Mid 2022：
- Local governments issue warnings about risks of 'zero down payment' home purchases.
- Late 2022：
- Developers start offering 'zero down payment' options in specific areas to attract buyers.
- Early 2023：
- Banks lower appraisal values for second-hand homes, leading to increased 'high appraisal, high loan' opportunities.
- Mid 2023：
- Local governments crack down on 'zero down payment' practices, but developers continue to offer promotions.
- Late 2023：
- Banks further lower appraisal values for second-hand homes, with over 80% of communities seeing appraisal values below listing prices.
- Early 2024：
- Industry insiders call for caution with 'zero down payment' practices, warning of risks to statistical data accuracy.
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