, China
Photo by Kaja Kariwating via Unsplash.

China’s measures to fix property slump raises risks for banks

Lower down payments may embolden buyers to walk away, analysts warned.

Recent measures to fix China’s property slump will weigh on banks in cities with declining property prices.

This may embolden buyers with “multiple first homes” to walk away and default, and in turn incur additional costs to banks, analysts from S&P Global Ratings warned.

On 17 May, the People’s Bank of China (PBOC) announced that it would cut the downpayment requirement on mortgages for first-time homebuyers by 5 percentage points (ppt) to 15%. The central bank also removed the lower limit on mortgage rates, which will allow banks to cut interest charges.

These moves are expected to boost demand for mortgages, which in turn carry the risk of straining banks focused on lower-tier cities, where property prices are slated to decline by about 14% between 2024-2025.

ALSO READ: APAC’s Top 20 banks' combined revenue up 4.3% in 2023

"Given that first-time homebuyers now only have to make a 15% downpayment, they could plausibly be pushed into negative equity if prices continue to fall in the third year of ownership. That may encourage some who have multiple 'first homes' to walk away from their units, and default," warned Ming Tan, S&P Global Ratings credit analyst.

Banks would then be left holding onto houses that are worth less than the mortgage loans, Tan said.

The removal of the floor on mortgage rates will also give lenders less buffer to absorb potential losses when defaults do happen, according to S&P Global Ratings credit analyst Ryan Tsang. 

“Banks would have to incur additional costs to pursue defaulters' other assets to mitigate the losses in such cases," Tsang said.

Follow the link for more news on

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Exclusives

ZA Bank’s Devon Sin on why Web3 is key to HK’s growth
The bank has expanded services to cater to stablecoin issuers and Web3 companies. 
CIMB Niaga leads the way in captivating Indonesia’s youth
The bank’s digital solutions are winning over younger generations with 3.2M mobile users and 96% digital transaction rate in 2023.
BCA sets benchmark in Indonesia’s microfinance sector
Innovative approaches reflect the bank’s commitment to pushing financial inclusion and fostering economic growth.