The greater Beijing metropolitan area has seen the return of loans for home down payments, despite a prohibition on the financial practice as part of efforts to rein in an overheating real estate market.
The provision of loans for down payments on properties became widespread across China in recent years, due to surging prices in urban housing markets and a minimum down payment of at least 30% for first-time homebuyers in most major cities.
Last year China’s central bank launched a crackdown on the provision of loans for down payments by developers and real estate agencies, and has since reiterated its stance on the practice during the current round of property control policies.
According to Securities Daily, however, many real estate agents are continuing to help buyers to obtain down payment loans across the Beijing metropolitan area via the fraudulent use of consumer and other loans provided by banks.
Liu Meng from Securities Daily visited a number of real estate agents in the Beijing area posing as an aspiring home buyer, and found that many were more than willing to help secure down payment loans when asked.
When Liu said that he did not own any property in his own name and would require a downpayment of around 1 million yuan, staff at one Beijing realtor said that a bank loan could still be secured.
“We cooperate with many banks…for your situation we can give consideration to applying for four different loans with four separate banks, which should be possible if each sum does not exceed 300,000 yuan.
“The maximum loan term is five years, with an interest rate of around 5.5%. In addition to this, the loan will require the payment of a 5000 transaction fee, to be given to the bonding company with whom we collaborate.”
The realtor also said that the loan could be obtained without the provision of documentary material in relation to earnings or social security, but reminded the prospective buyer of the need to lie to loan officers.
“If the bank asks you about how the funds are to be used, do not mention home purchases or down payments. Also, once the loan is deposited in your account you need to first withdraw it and deposit it in another bank account before buying the house…this way the bank will not be able to determine the use of the loan.”
The realtor sought to make the reassurance, however, that all parties were fully apprised of the scheme.
“Actually bank staff also know that the loan will be used for to make a home purchase…all the borrowers for whom we provide intermediation services are buying homes, and as long as you don’t lay it all bare yourself, there won’t be any problem.”
Liu reportedly received similar responses from other Beijing agencies, although with different lending conditions if buyers are already home owners, and some realtors also indicating they could shorten the loan application period for buyers with better credit ratings.
Developers offer financing to reduce down payments to 10%
In addition to the ready availability of loans for home down payments, Liu also found that many apartments developers situated around Beijing are offering to provide down payment financing to prospective homebuyers in order to expedite sales.
Sales staff for one new apartment complex in Hebei’s Langfang city said that while regulations mandate a minimum down-payment of 50%, the developer would provide down payment financing of 40% for a period two years without interest or transaction fees.
According to Liu this form of financing usually reduces the initial down payment for the buyer to between 10% to 30%, with the developer taking care of the remainder to meet the down payment requirements of banks.
The borrowing period is typically between one to two years, while developer do not charge either interest or transaction fees for down payment financing.
The greater Beijing metropolitan area has seen the use of down payment financing by developers in the recent past, with local regulators launching a crackdown on promises of 10% down payments in Yanjiao Town, which adjoins Beijing’s Tongzhou district, only several years ago.