Housing market major concerns for bankers

08:54, October 15, 2010      

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Chinese bankers see the risks of falling housing prices and the outstanding loans to local governments via financing platforms as two of their major concerns, according to the Chinese Bankers Survey Report 2010 released Thursday.

About 72 percent of Chinese bankers said the risk of plummeting housing prices remains their top concern, though they anticipated a bullish property market in the long run, the survey by the China Banking Association (CBA) and PricewaterhouseCoopers (PwC) found.

The survey collected forecasts by senior executives and managers from domestic banking financial institutions on China's economy.

Most respondents believed that housing prices would go down in the short term, but would return to the upward trend in the long run due to the limited land resources and ongoing urbanization process, according to the survey report.

Meanwhile, the risk chain in property development loans and the impact of hot money inflows betting on the yuan's appreciation also triggered more concerns from Chinese bankers.

Seventy-one percent of China's bankers anticipated bad loans would rise in the future due to the tightening measures by the government to cool down the runaway housing market.

In April, the Chinese central government raised minimum down payment requirements to 30 percent of the purchase price for first-home buyers purchasing an apartment above 90 square meters in popular cities such as Beijing and Shanghai in an attempt to curb excessive housing price hikes.

As housing prices continued to jump during the April-September period, the Chinese government announced tougher tightening measures on September 30, such as suspending loans to third home buyers and 50 percent down payment requirements for second-home buyers and 30 percent for all first-home buyers.

According to the National Bureau of Statistics, property prices in China's 70 major cities rose 9.3 percent in August over one year ago. On a year-on-year basis, China's home prices rose 7.8 percent in December 2009, 9.8 percent in January 2010, 10.7 percent in February, 11.7 percent in March, 12.8 in April, 12.4 percent in May, 11.4 percent in June and 10.3 percent in July.

Besides concerns about the property market, loans to local governments through their financing vehicles remain another major concern for Chinese bankers, among whom 63 percent of respondents said the risks of loans to local financing companies are looming, according to the CBC/PwC survey.

Many local governments in China have set up special financing platforms that borrowed from banks to fund infrastructure projects, capitalizing these vehicles with the governments' land sales revenue and providing guarantees for them.

But concerns has been rising about the risk of loan defaults in the sector, as local governments in China cannot issue bonds themselves, making it risky for them to guarantee loans if they face revenue shortfalls.

While 88 percent of bankers said they would not expand the scale of those loans to financing companies associated with local governments, 56 percent said the scale should be strictly controlled or reduced.

Ba Shusong, a researcher at the Finance Research Institute of the Development Research Center of the State Council, China's Cabinet, said a large proportion of the country's 6.3-trillion yuan- ($945 billion) new lending in the first three quarters of this year went to those financing vehicles of local governments.

Additionally, individual home mortgage loans rose by 247 billion yuan ($37 billion) in September, accounting for over 40 percent of the month's overall credit expansion, according to data from the People's Bank of China (PBOC), or the central bank, on Wednesday.

The PBOC on Tuesday temporarily raised the reserve requirement ratio of four major state-owned lenders and two privately owned banks by an extra 50 basis points to 17.5 percent for two months.

The Chinese government set the annual target for new loans in 2010 at 7.5 trillion yuan at the beginning of the year, after a record 9.59 trillion yuan of new lending in 2009 fueled asset bubbles and inflation fears.

Based on the September loan figures, up to 84 percent of the planned annual lending has been pumped into the market during the first nine months of this year.



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