Multiple banks in the southern Chinese manufacturing hub of Shenzhen have suspended the provision of consumer loans due to concerns over their illicit use for speculative investment in the real estate market.
Major cities across China have seen the increasing use of personal consumer or business loans for property investment purposes, as regulators tighten up lending quotas and banks dial up home loan rates as part of efforts by the government to contain overheating real estate markets.
Official data indicates that consumer loans have seen roaring growth this year in tandem with a tightening of property market control policies.
For the first seven months of July, new personal short-term consumer loans reached 1.06 trillion yuan, for an increase of 713.7 billion yuan compared to the same period last year.
Despite this surge in consumer lending, however, data from the National Bureau Statistics indicates that total social consumption retail sales have not seen a corresponding increase in growth rates, with year-on-year growth instead hitting a half-year low out in August.
A report from Shanghai E-House Real Estate Research Institute entitled “Research into the Flow of National Household Short-term Consumer Loans into the Property Market” (全国居民短期消费贷款流入楼市现象研究) speculates that since March of this year at least 300 billion yuan in new short-term consumer loans have been used for real estate investment, comprising around 30% of all new short-term consumer lending.
The widespread illicit use of personal consumer and business loans for investment in property has just prompted the China Banking Regulatory Commission to launch a nationwide crackdown on the practice, as local regulators take the lead within their own jurisdictions.
Investor China reports that multiple banks within the Shenzhen area have indicated that they have already tightened consumer loans, with many imposing restrictions that are more severe than those required by regulators.
“We suspended consumer loans at the start of the year, and currently only provide consumer loans to officials or personnel from public departments,” said one member of staff at a China Minsheng Bank branch in Shenzhen’s Futian district to Investor China.
According to the report staff from Industrial and Commercial Bank of China and China Construction Bank branches in the Shenzhen area have also indicated they no longer provide consumer loans to standard clients.
While Shenzhen banks may have suspended consumer lending in response to pressure from authorities, the report indicates that they are still willing to provide funds for property investment purposes, this time in the guise of business or “operations loans.”
Staff at the branch of one joint-stock banks said that while consumer loans were suspended, they would recommend applying for an “operations loan” from the bank if the reporter had a registered company for at least two years.
The application form provided by bank staff listed “purchase of a new home” and “purchase of a pre-owned home” as the two uppermost choices under the “loan usage” section of the document.
Bank staff said to the Investor China reporter that it was fully permitted for loan funds to be used for real estate investment purposes, and that the bank itself would not investigate the source or flow of funds for the borrower’s company as long as it had been registered for at least two years.
One industry observer said that while the purchase of commercial property using operating loans was in and of itself no cause for criticism, there was no doubt that local banks were providing loans to recently registered companies for real estate speculation purposes.