Bank loan

Increase in illegal real estate financed by bank loans in China worries regulators

  • Speculators fuel soaring house prices in major Chinese cities since last year
  • Some speculators finance their purchases with bank loans for professional use
  • Policymakers fear embezzlement crowds out business credit

BEIJING, April 16 (Reuters) – Real estate purchases in China funded by bank loans fraudulently obtained by speculators are fueling already boiling real estate markets in its biggest cities and starting to alarm regulators.

Four Tier 1 Chinese cities, including Shenzhen and Shanghai, have reported since March that an investigation by financial regulators found that 877.8 million yuan ($ 134.21 million) in bank loans had been misused to the purchase of real estate.

Analysts say this was just the tip of the iceberg and the number could be significantly higher nationwide.

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“The amount (of misused loans) could run into the hundreds of billions of yuan in Chinese Tier 1 and Tier 2 cities,” said Hong Hao, head of research at BOCOM International in Hong Kong, an estimate based on on assumptions including 2020 transactions and loan volumes. .

The illegal embezzlement of bank funds presents a political dilemma for Beijing, which wants to keep lines of credit open to support businesses while ensuring that loans are not embezzled.

Home prices in major cities have skyrocketed since last year, fueled by relentless speculation that Beijing has so far failed to suppress, and in many cases funded by commercial loans from local governments. banks.

Regulators fear that real demand for credit may be crowded out by illegal home loans. They have asked local governments for a report on these loans by May 31.

“In some scorching cities with high expectations of rising house prices and high levels of speculation, there are cases in which people fraudulently obtain commercial loans from banks to buy a house, and some have even involved organized criminal activity, ”Zou Lan, head of financial markets at the central bank, said Monday at a press conference.

“If this cannot be contained immediately, it will not only affect the effect of real estate regulatory policies, but it will also deplete credit resources for the real economy, especially for small businesses.”

The People’s Bank of China (PBOC) and the Ministry of Housing, Urban and Rural Development did not respond to Reuters requests for comment.

ALERT LAUNCHER

Major Chinese cities have imposed onerous conditions on the purchase of residential properties, including requiring buyers to hold a residence permit for up to five years and to pay at least 30% of the price of cash purchase.

People, however, have found ways to try to get around them.

In one case last year, an unidentified woman detailed her plan in an ad posted to some WeChat groups, seeking a co-investor among their more than 3,000 members for a property purchase in Shenzhen.

The so-called “stakeholder” would finance part of the 30% down payment on a 7 million yuan apartment in the city, and they would jointly borrow the remaining 4.9 million yuan.

She would then use the house as collateral to apply for business loans through a shell company and repay the 4.9 million yuan with the new bank loans, which carry lower interest rates than the mortgages.

The two would later sell the house for a higher price and pay off any outstanding debts. She would get a 5% discount on the sale.

The ploy was described in 102 WeChat chat history screenshots by an anonymous whistleblower on China’s Twitter-like microblog Weibo last week.

“I’ve been exposing their tactics for a while, and this is my third Weibo account as the previous ones were closed or suspended by the platform, but I knew it wasn’t going to be easy,” the whistleblower said. to Reuters.

Authorities in Shenzhen said last week they would investigate the WeChat groups described in the whistleblower’s messages.

($ 1 = 6.5292 yuan Chinese renminbi)

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Reporting by Lusha Zhang and Ryan Woo; Editing by Muralikumar Anantharaman

Our Standards: Thomson Reuters Trust Principles.