Home Loan Growth Eases as Property Controls Drive Rates Higher: Central Bank

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Growth in housing loans has eased over the past several months according to the People’s Bank of China’s report for the third quarter, while property controls will further intensify to vary degrees at the discretion of local government.

The central bank’s latest Q3 report indicates that as of the end of September 2017 China’s RMB real estate loan balance was 31.1 trillion yuan, for a year-on-year increase of 22.8%, and decelerating growth of 1.4 percentage points compared to the second quarter.

The personal home loan balance for the third quarter was 21.1 trillion yuan, for year-on-year growth of 26.2%, and a deceleration of 4.6 percentage points compared to the preceding quarter.

Easing growth in personal home loans would appear to be the result of the strict property market controls launched by the Chinese government, and in particular rate hikes by banks around the country and a tightening of the screws on lending.

Data from Rong360’s “2017 China Home Loan Market September Report” (2017年中国房贷市场9月报告) indicates that the average first home loan rate for 36 cities monitored rose to 5.22% last month, with high of 6.6% in Zhengzhou and allow of 4.89% in Shanghai.

21st Century Business Herald reports that banks around Beijing, including the all of the big state-owned lenders, have hiked their first home loan rates to between 5 to 10% above their benchmark rate.

In addition to rate hikes, banks are also staunching the release of home loans in order to stay within official lending quotas.

“At this time last year, Beijng’s home loan market was in full swing,” said one Beijing-based mortgage approval officer to 21st Century. “The household home loan application volume was constantly increasing, and we were busy every day.

“Since the start of the year, while many people are still seeking home loans, and demand for home loans is high as home prices rise, application times have increased markedly.

“This means that banks have imposed controls upon their lending volumes each month, because they do not want to exceed the same period last year. At present the average loan approval time is around 3 months.”

Analysts say the long-term imposition of property control policies is having a major impact upon home loans.

“Firstly, purchase and sales restriction policies are reducing the number of people who qualify for home purchases,” said Zhang Hongwei (张宏伟) of Tospur (同策咨询研究中心) to 21st Century Business.

“Real estate transaction volumes are declining, and the lending growth rate is declining in tandem.

“Secondly, lending by banks has quotas, and once the quotas are used up, approvals become stricter and the release of loans slows.”

Zhang’s analysis is vindicated by a lending manager for the Beijing branch of one of the big state-owned banks.

“Starting from march this year, banks began to make inspections of real estate loans stricter, but by the middle of the year they loosened up because the banks have quotas and their performance targets hadn’t been met.

“Starting from September, however, because the overlapping impact of policies and performance forecasts, [lending] became strict again.”

According to bankers while property control policies may have led to easing loan growth, bank profits are unlikely to remain affected, with rising rates compensating for diminished lending volumes.

If new home loans extended by a bank were 1 million yuan in September of last year at rates of 4.165%, for a 15% discount to benchmark, the interest returns over a twenty year period would approach 480,000 yuan.

If this lending amount were to increase to 1.2 million yuan, however, and rates were to rise to 10% above benchmark to 5.39%, then the interest returns over a twenty year period would see an approximate 60% increase to over 760,000 yuan.

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