China’s four largest banks have devised a scheme to get around the government’s anti-growth stance on the real estate market.
There isn’t yet a financial civil war in China, but a fresh move in the country’s dismal real estate market might be the catalyst.
China’s four largest banks stated that they will loosen lending limits by charging lower rates to developers and qualifying first-time homebuyers, a move the government has fought and won since late 2009 to prevent a comprehensive real estate bubble implosion. qatar property
Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd, and Agricultural Bank of China Ltd are the four state-owned banks. They account for around 40% of total loans in China.
The banks’ surprising decision was announced on the main page of the People’s Bank of China’s Financial News.
Hua Zhongwei, an economist at Beijing’s Huachuang Securities, believes China’s housing market will revive quickly. If property developers and first-time homebuyers, particularly in second and third-tier cities, find it simpler to obtain bank loans.
However, Li Shaoming, a Beijing-based property analyst, believes that while the Big Four would expand lending to low-margin and low-rent apartment projects, they would be less liberal to high-end projects like luxury villas.
Premier Wen Jiabao’s two-year stranglehold on the real estate market has slowed property turnover across the country, lowered land sales earnings for local governments, and prompted banks to abandon their profitable lending business.
Property developers and homeowners received 1.26 trillion Yuan ($200 billion) in loans from Chinese banks in 2011, accounting for 17.5 percent of total new loans.
According to previously disclosed Central Bank data, Chinese banks lent 2.02 trillion Yuan to developers and homebuyers in 2010, accounting for 26.9% of total new loans for the year. On March 5, one Yuan was worth 0.158781 dollars in US dollars.
According to China’s own economic data, real estate investment accounts for around 13% of the country’s GDP and stimulates demand in more than 40 industries.
Many investors, according to some analysts, are concerned that a too sharp a correction in real estate risks could slow the country’s economic growth. China’s growth slowed to 8.9% in the fourth quarter of 2011, the worst in two and a half years.
The United States, on the other hand, grew at a pace of 3% during the same time period.
Banks are loosening credit rules all across the world, not only in China.
The Federal Reserve in the United States has pumped massive quantities of liquidity into the banking system and has promised to keep interest rates low until 2014.
In Europe, the European Central Bank (ECB) established a scheme to make low-interest loans (1%) with a three-year tenure available to European banks in order to mitigate the effects of the debt crisis on banks.
The Bank of England said that it had injected an additional £50 billion ($79.2 billion) into the British economy.
The Bank of Japan raised its quantitative easing program by three trillion yen ($36.8 billion).
China, Brazil, India, and Indonesia have all declared that their reserve requirements for banks have been reduced, allowing banks to lend more money to the real estate business.