With talks of an impending housing bubble, China has introduced a new crackdown on mortgages issued by property developers to homebuyers.
According to Forbes, China has banned real estate brokers and developers from financing property acquisitions unless they have the necessary licenses. Reports say that wealthy Chinese are putting their money on real estate as the government is trying to control the flow of capital to overseas countries.
Zhang Dawei, chief analyst at Centaline Property, said that in Beijing alone, as much as $277 million mortgages in the past 12 months come from unregistered developers and brokers. With this kind of loans, homebuyers are able to shell out a down payment of 10-20 percent, compared to 30 percent for a first-time buyer and 40-50 percent for second and third homes. This means that there are homebuyers who are otherwise unqualified for a mortgage. The small loan companies and peer-to-peer mortgages are also considered as factors for the increases in house prices lately.
In February, Reuters reported that the country saw a fast pace in house prices growth. A poll by property services firm Real Estate Information Corporation (CRIC) covering 288 cities revealed a 4.3 percent increase in average home prices in February compared to the previous year. A separate survey from China Real Estate Index System (CREIS) involving 100 cities showed a 5.3 percent climb in home prices last month from a year earlier.
Officials have warned that the pace is too fast, posing a risk of overheating in the property market. With that, the government is introducing rules that would prohibit gray-market loans. Regulators will also ask commercial banks to implement stricter scrutiny of mortgage applications and to not approve loans coming from the gray market. Officials believe that if the crackdown is implement properly, house sales will slow down.