NANJING, China – Government efforts to tackle a glut of vacant housing in China by spurring home lending have triggered a bigger problem: a surge in risky subprime-style loans that is generating alarm.
Home buyers in China normally put down a third of the cost of a new property upfront. But a rapid rise in buyers borrowing for their down payments – an echo of the easy credit that cratered the U. S. housing market and sparked the financial crisis – has led authorities to clamp down.
Peer-to-peer lenders, who raise money from investors and then lend it out at higher interest rates, made 924 million yuan ($143 million) in down-payment loans in January, more than three times the amount made in July, according to Shanghai-based consultancy Yingcan.
A senior banking executive at one of China’s top four state-owned banks said down-payment loans directly contributed to a recent run-up in housing prices in big cities. ‘It’s a risky practice that should be contained,’ he said.
Officials are now stepping on the brakes. The central bank and the housing ministry last month started to crack down on loans that can be used by home-buyers to finance their down payments.
This post was published at David Stockmans Contra Corner on April 4, 2016.
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