Beijing Cracks Down on Illicit Loans for Land Purchases

The average price of buying a new home in China rose five percent in June compared to the same month in the previous year, but Beijing’s home price inflation firefighters are already showing their readiness to keep the city’s rekindled housing costs from truly catching fire.

Local news reports within the last week indicate that real estate regulators in China’s capital are set to tighten their scrutiny of capital sources for land purchase after some of the country’s top lenders were cited recently for illicitly providing credit to companies in the property sector.

The stricter lending practices come at the same time that officials from China’s Ministry of Housing and Urban-Rural Development (MOHURD), along with other authorities have begun inspecting real estate markets in 30 cities for policy violations as part of a general effort to tamp down home price inflation.

Naughty Banks Punished

Beijing sold more than RMB 50 billion in land during the first half of 2018, but developers hoping to compete for those pricey plots will have to be more careful about where they get their cash from after 12 mainland financial institutions, including banking giants, ICBC, Agricultural Bank of China (ABC) and China CITIC Bank all were recently cited by China’s National Audit Office for breaking rules on lending to the property industry.

An account in mainland real estate site Guandian.cn cited officials from the Beijing Land Reserve and Consolidation Agency, which supervises land sales, as indicating that site auctions in the city will now be more closely monitored, with thorough checks on where bidders are sourcing their capital from.

Mainland policies forbid borrowing money to buy land.

Audits Find Illegal Loans for Land Buys

According to notices posted by the National Audit Office on June 20^th, branches of CITIC Bank were found to have illegally lent more than RMB 21.1 billion to real estate enteprises from 2013 to the time of the audit, with much of this funding going toward land purchases.

Units of ABC were found to have illegally provided over RMB 9.54 billion in financing to real estate enterprises from 2014 through 2016, and at least some of these funds were used to secure land. Branches of ICBC in Hebei and Jiangsu are now said to have illegally issued M&A loans to real estate enterprises amounting to more than RMB 3.6 billion from 2013 to 2016.

The audits also found banks providing personal loans to individuals which were later used to purchase real estate.

Rising Home Prices Attract Greater Enforcement

The capital crackdown comes after prices for new homes rose in 61 of China’s 70 largest cities in June, according to a monthly survey by the National Bureau of Statistics. While prices have been falling in Beijing and other first-tier cities, last month that rate of contraction slowed to just 0.1 percent in the capital.’

On June 28^th, China’s MOHURD announced that it would launch a campaign to stamp out “chaos” in the real estate market, focusing on closing loopholes and stamping out illicit credit sources.

During the two weeks following that declaration, government officials had already begun investigating, and meting out punishment, in 22 Chinese provinces and municipalities to help enforce President Xi Jinping’s vow at last year’s party congress that, “homes are for living, not for flipping.”