China moved to prop up funding for individual homebuyers today by allowing the country’s first offering of mortgage-backed debt sales, after banning the financial products in 2007 after they helped bring about the meltdown of the US economy.
According to news on local financial websites, the state-owned Postal Savings Bank of China was to put up for sale today RMB 6.8 billion ($1.1 billion) of the mortgage-backed notes.
With government figures released last week showing home prices dropping in 55 of 70 cities nationwide, the government appears to be turning to the mortgage-backed debt products as a way to allow more credit into the system without pumping cash directly into the hands of property developers.
During recent years, China has waged a seesaw battle between housing price inflation and the threat of a collapse in the real estate market as it attempts to cool down overinvestment in the property sector without bringing down its economy.
According to analysts, by allowing the sale of mortgage-backed securities, the Chinese regulatory authorities are helping banks to fortify their balance sheets, and indirectly fortifying the amount of credit available in the money system. However, should the country’s real estate market become less stable in the coming years, there are concerns that the integrity of the mortgage backed debt may not withstand a downturn.
Just last month the country’s central bank cut the reserve requirement for banks as it sought to prevent a hard landing in the cooling economy.