The cutback in credit to China’s property sector was spelled out by the country’s central bank on Friday, when new figures revealed that growth in loans dropped 1.57 percent in the first quarter of this year.
According to a statement on the People’s Bank of China website, outstanding renminbi loans from Chinese domestic banks for real estate projects grew to RMB 15.42 trillion by March 31st, increasing 18.8 percent compared to the same period last year. The loan growth rate for the last three months of 2013 had reached 19.1 percent compared to the same period in 2012, and land prices have continued to rise this year.
Despite the continued increases in housing prices, growth in outstanding mortgage loans also slowed down, climbing by 20.1 percent in the first quarter of this year compared to the same period last year. Annual growth in mortgages had reached 21.0 percent in the final quarter of 2013.
ICBC Confirms Plan to Cut Back on Real Estate Loans
Media reports last week indicated that China’s largest bank, ICBC, earlier this year asked its managers to “limit” lending to property developers and urban construction because of the sector’s rising risk of default.
In Zhejiang, where the housing market has become particularly overbuilt, a banker in the credit-approval department at ICBC’s local branch told Reuters, “Since the beginning of this year, we have stepped up efforts to stop rolling over loans to risky borrowers in underperforming industries.” The loan officer explained that, “We expect more defaults this year and, so, need to tighten credit-risk control.”
Zhejiang Xingrun Real Estate in Ningbo defaulted on RMB 3.5 billion in loans earlier this year, and the province’s capital city, Hangzhou, recently asked developers to submit any further discounts on new properties for approval, after falling housing prices began to spark civil unrest in nearby cities.
In February, the official Shanghai Securities Journal reported that Fujian-based China Industrial Bank had suspended “mezzanine financing in the real estate sector” and “financial business in the property supply chain.” However, the regional bank reportedly continues to offer mortgages to individuals.