Foreign banks seem to be coming under pressure to cut back on US dollar lending to Chinese borrowers as HSBC has suspended new mortgages for some mainlanders buying American homes.
The London-based bank, which was formerly known as the Hong Kong and Shanghai Banking Corporation, has extensive operations in Hong Kong still, and is said to have adopted the measure after other foreign banks were penalised by mainland authorities as China attempts to stem a flood of capital leaving the country.
Should HSBC’s new approach become common practice among lenders is could put a dent in a flourishing trade in selling US homes to Chinese, with buyers from Hong Kong and the mainland having been the biggest foreign purchasers of American housing over the last two years.
HSBC Acts After Standard Chartered, DBS Hit
The bank, which is one of the four major financial clearing institutions in the UK revealed its new policy in comments to Reuters in New York late last week, saying that the new rules had gone into effect during the week of January 18th.
HSBC said that it will no longer provide mortgages to some Chinese nationals who buy real estate in the United States. The bank did not specify which nationals it was referring to. Many Chinese buyers are known for buying overseas homes with cash, or by arranging mortgages with mainland banks.
The move by HSBC followed roughly one month after fellow UK bank Standard Chartered and Singapore’s DBS were suspended from participating in foreign exchange business in China as mainland authorities attempt to get a grip on new levels of pressure on the yuan currency and growing movement of capital out of the country.
China has seen nearly $1 trillion in capital moving out of the country since the second quarter of 2015, according to recent estimates by JPMorgan Chase, and much of this has been going into foreign real estate.
Outbound Homebuyers Could Be Draining China’s Coffers
Buyers from mainland China, Hong Kong and Taiwan together purchased $28.6 billion worth of US residential property in the period from April 2014 to March 2015, according to data from the National Association of Realtors, making the group the largest foreign buyers of US real estate for the second year in a row.
All of this cash outflow has become a concern to China’s rulers since the yuan has come under pressure in recent months. The People’s Bank of China (PBOC) has spent billions of dollars buying yuan over recent months to defend the exchange rate, but the currency has still fallen around 5 percent since August.