China caps real estate loans to curb risks

CHINA’S REGULATORS will impose caps on banks’ lending to the real estate sector for the first time, in their latest efforts to prevent systematic risks after a series of property curbs in recent years did little to damp buyer enthusiasm.

Under the new mechanism taking effect on Jan. 1, 2021, loans to developers will be capped at 40% for the nation’s largest state-owned lenders while banks’ mortgage lending should be no more than 32.5% of their outstanding credit, the People’s Bank of China and the China Banking and Insurance Regulatory Commission said in a joint statement on Thursday. Those exceeding the cap will have a grace period of up to four years to meet the requirements.

The move underscores authorities’ determination to keep a tight rein on the bubble-prone sector and curb leverage at some of the nation’s largest developers. China’s home prices kept rising despite years of regulatory clampdown, stoking social discontent and pushing up financial risks as lenders increased bets on the sector to bolster profits.

New home prices rose by 0.12% last month, the slowest pace since February, as wider property curbs cooled demand, prompting developers to cut prices. Still, prices have gained every month since mid 2015.

Banks will be put into five categories and subject to different ceilings on their loans to developers and home buyers. While most of them had their current real estate exposure within the limits, those failing to comply will face additional capital charges, according to the statement. — Bloomberg

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