Chinese property market faces heavy financial risks: report
16/8/2005 15:46
The sizzling Chinese property market faces heavy risks as the price keeps
going up, said a report from the People's Bank of China in Beijing
Monday.
The property price in some parts of China witnessed fast growth in
2004, which may be turned into housing bubble, acknowledged the report. Once the
bubble burst, the bank, who has made loans to the houses buyers, will suffer
great loss.
The risks also come from property developers, who mainly
channeled their development fund from the bank, noted the report. As the country
set higher threshold for the industry and tightened credit loans, the capital
chain might have difficulty or even break down. Then the developers will not be
able to repay the loans.
The central bank statistics showed that the housing
loan, including loans made to the property developers and individual buyers,
stood at 2.6 trillion yuan (about US$310 billion) by the end of 2004, accounting
for about 15 percent of the total RMB loans.
False mortgage is another factor
bringing risks to Chinese banks, said the report.
As the interest rate of
individual housing credit is lower than that of property developing loans, some
developers get loans by illegally house purchasing with employees pretending
consumers, some of whom repaid the loan after selling houses while some others
fled for being incapable of selling the houses out.
Local land reserve
centers, which get credit from commercial banks for land purchase, however will
be taken as a financing channel when local governments are facing capital
limits. As a result, income from land selling is appropriated for other use and
their payment of debts for banks will even be averted.
According to the
report, by the end of 2004, China's land reserve loan has reached 82.84 billion
yuan (some US$10.2 billion), bringing more difficulties to Chinese banks for
supervision on the use of the fee for land use right.
Furthermore, there
still exist operation risks in basic banks such as inaccurate loan review and
management confusion.
According to a newly issued regulation, the banks have
no power to sell the houses for recalling the loan even if the houses buyers
refuse to pay the loan. Such regulations have also brought certain legal risks
to house credit of banks, said the report.
However, local banks have issued
some measures to dissolve those risks, said the report.
For example,
commercial banks in Shanghai have raised the ratio of first payment for
apartments or houses to 50 percent so as to reduce the risks of depreciation of
house values.
The central bank asks all banks to abide by loan criteria for
housing developers to bar the above risks, to improve the penalty system, to
enhance risks control of interest rate, to improve housing guarantee system and
to make further research on housing loan insurance system.
Xinhua News
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