The Chinese Communist Party has recently stepped up its property market controls, trying to cool down China’s property market by limiting bank lending to real estate and setting “three red lines” for real estate companies to curb their expansion. A researcher at a state-owned think tank said it was “politically unacceptable” for the Communist Party to keep property prices rising. Chinese financier Wu Xiaoling, a former deputy governor of the central bank, argued that a collapse of China’s real estate would directly lead to the collapse of the country’s bubble economy.
China’s Communist Party Steps Up Real Estate Controls to Set Limits on Bank Real Estate Loans
In recent weeks, the Chinese Communist government has made further regulation measures on real estate, specifically starting with debt to control the real estate sector.
In late December 2020, the CCP’s central bank issued new regulations limiting bank lending to developers and capping the balance of Home mortgages as a percentage of total loans. According to CCP central bank data, real estate loans accounted for 29% of total RMB loans at the end of the third quarter of 2020.
These CCP measures to cool the property market appear to be having an effect, with new home prices in China’s major cities rising 3.7 percent year-on-year in December 2020, the lowest increase since the beginning of 2016, and a minimal year-on-year increase, the Financial Times Chinese reported on Jan. 26.
A researcher at a state-owned think tank said, “The (Communist) government does not want housing prices to keep rising,” and that it is “politically unacceptable” for prices to continue to rise.
The report said the Communist Party’s real estate regulation did not start now, as in 2017, General Secretary Xi Jinping said “houses are for living, not for speculation.
In addition to Xi Jinping, the CCP’s top officials have recently made frequent statements about real estate risks such as the “gray rhinoceros.
On December 3, 2020, Vice Premier Han Zheng said at a symposium held by the Ministry of Housing and Urban-rural Development that real estate should not be used as a means of short-term economic stimulus, and that the string of real estate market regulation should be tightened at all times. It is reported that this is the second Time in four months that Han Zheng held a symposium on real estate issues.
Financier: real estate collapse will directly trigger the collapse of China’s bubble economy
Data show that 200 million families in China have applied for loans to buy houses, according to the Communist Party’s central bank report in October 2020, China’s personal housing loan balance of 33.59 trillion yuan, which means that China’s 200 million families carry 33.59 trillion loans, the average home loan of 168,000 yuan per Family.
Another data shows that the leverage ratio of Chinese residents started to increase after 2015. 3% in 1996, 18% in 2008, more than 58% at the end of 2019 and already more than 60% in 2020.
According to international standards, once the leverage of the residents reaches 70%, there will be a financial crisis and subprime mortgage crisis. Therefore, it is extremely risky for residents to bet all their family assets on real estate.
It is worth noting that the foreclosed houses in China in 2020 have doubled compared to 2019, increasing by nearly 500,000 units, of which, most of them are abandoned by owners who break their mortgage payments and then the banks entrust the courts to auction them. Not long ago, the city of Hefei had more than 300 broken mortgages for sale.
Wu Xiaoling, a Chinese financier and former deputy governor of the central bank, said that the four major trading markets of “stocks, foreign exchange, bonds and houses” are the lifeblood of China’s finance, of which the weakest and most influential is real estate.
Wu Xiaoling believes that China’s high real estate prices are due to excessive currency issuance and high housing prices of 430 trillion market value, which has become the “Sword of Damocles” hanging over the Chinese economy. The real estate originally belongs to the industry and infrastructure investment, when the property is given financial attributes, housing prices have become an uncompromising financial game, once the real estate collapse, will directly lead to the collapse of China’s bubble economy.
Wu Xiaoling said that the plunge in housing prices will trigger a banking crisis, because once housing prices plunge, the house slaves may cut off their mortgage payments and return the house to the bank, jumping not only the landlord, but also the bank.
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