Rising demand
Given the soaring home prices around the country, especially in the first-tier cities, down payment loans have been incredibly popular as many homebuyers and some speculators rush into the property market, according to media reports.
Shanghai and Beijing, as well as Guangzhou and Shenzhen in South China's Guangdong Province, are ranked China's first-tier cities.
It is unclear when realtors began offering down payment loans, but Wang said the loans started to get popular in September 2015.
Property developers and real estate agencies fund the down payment loans on their own or through third-party online financing institutions, the Economic Information Daily reported on Monday.
Many online financing institutions offer down payment loans, such as Haofangdai, which is being promoted by an e-commerce platform of Ping An Insurance (Group) Co, and the Guangzhou-based P2P lending platform gzdai.com.
The original purpose for offering down payment loans was good because it helped less well-off homebuyers get easier access to the property market, said Yan Yuejin, a research director at the Shanghai-based E-house China R&D Institute.
"It is also easier for homebuyers who want to purchase a second home because they can pledge their personal property as collateral," he told the Global Times on Monday.
"I applied for a down payment loan from an online P2P platform three months ago when I bought a new apartment in Luohu district in Shenzhen," said a white-collar worker in his 30s surnamed Wu.
"This kind of loan is quite good because my savings failed to cover the down payment," Wu said.
"Many of my colleagues in my age were also willing to try this loan," he noted.
But the hidden risks brought about by the loans, such as increasing the financial levearge in the domestic property market, should not be overlooked, Chen Juntao, an analyst at the market research firm Analysys International, told the Global Times on Monday.
Strengthening regulation
Considering that the country has stepped up efforts to cut the inventory of unsold housing, some "zero down payments" leverage has appeared in the domestic property market, media reports said.
In fact, the loans for down payments is another kind of financial leverage posed by some private financial institutions following commercial banks' previous leverage strategy, said Yan, the research director.
"Some property spectators take advantage of this kind of loan," he noted.
More attention should be paid to the leverage posed by financial innovation and financial products that aim to make profits, said Huang Qifan, mayor of Southwest China's Chongqing, during a panel discussion at this year's annual session of the National People's Congress, news portal http://www.cet.com.cn/ reported on Tuesday.
"If the inventory cut was realized by increasing leverage in the property market, it would add huge risks to the country's economy," Huang was quoted as saying in the news report.
China's central bank and departments such as the Ministry of Housing and Urban-Rural Development and the China Banking Regulatory Commission (CBRC) are about to govern the financial business that involves real estate companies and realtors in the market, Pan Gongsheng, deputy governor of the People's Bank of China, said Wednesday during a panel discussion in the National Committee of the Chinese People's Political Consultative Conference.
If the property firms and agencies are unqualified, they cannot offer such financial services, Pan noted.
Bloomberg reported on Monday that authorities will ban lenders including developers, real estate agencies, small-loan companies and P2P networks from offering loans for down payments.
Regulators including the central bank and the CBRC will also ask commercial banks to scrutinize mortgage applications and reject those in which down payments come from loans offered by such institutions, Bloomberg reported, citing people familiar with the matter.
"After home prices jumped in recent weeks, authorities will probably launch investigations into institutions that offered loans for down payments," Yan said.
Because some financing platforms cannot do as strict credit checks on homebuyers as commercial banks, default risks are likely to grow, Yan said.
