The Bank of Korea: "China Strengthens Real Estate Loan Regulations and Anti-Speculation Measures... Signs of Overheating in the Housing Market"

Bank of Korea 'Overseas Economic Focus'
China Strengthens Measures to Stabilize Real Estate Market

Skyline view of Pudong District, Shanghai, China [Image source=AP Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] Recently, some regions in China have shown signs of overheating in the housing market, leading the Chinese government to strengthen measures to stabilize the real estate market.

On the 7th, the Bank of Korea stated in its 'Overseas Economic Focus' report that "As real estate market stabilization has emerged as a major issue in economic policy in China, measures to stabilize the market, such as real estate loan regulations and policies to curb speculative demand, have been strengthened." In November last year, Guo Shuqing, Chairman of the China Banking and Insurance Regulatory Commission, identified the real estate market as the biggest gray rhino, and the Central Economic Work Conference also presented housing market stabilization as a 'core policy task for 2021.'

Housing prices in China briefly stalled at the beginning of last year due to the spread of COVID-19 but rebounded afterward, with the average housing price in 31 provinces approaching 10,000 yuan per square meter (approximately 5.7 million won per pyeong) by the end of last year. This represents an increase of about 7.5% over the year.

In particular, housing prices rose sharply in southeastern coastal areas such as Shanghai (11.6% year-on-year), Jiangsu Province (9.6%), and Guangdong Province (8.6%). As real estate prices surged, household debt, mainly mortgage loans, increased rapidly, and the debt ratio of real estate development companies also rose. As of the third quarter of last year, the household debt-to-GDP ratio in China increased from 55.8% at the end of the previous year to 61.4%. Approximately 60% of household loans consisted of mortgage loans. The phenomenon of rising household loans due to rapidly increasing housing prices is similar to that in South Korea.

Therefore, China publicly announced the 'Three Red Lines' regulations for real estate development companies and introduced the 'Real Estate Loan Concentration Management System' at the end of last year to reduce the concentration of real estate-related loans by financial institutions. This system sets upper limits on the proportion of individual mortgage loans and total real estate loans for each bank, regulating them so that they cannot be exceeded.

Market stabilization measures have also been implemented, focusing on cities with high housing price growth rates such as Shenzhen and Hangzhou. Shenzhen strengthened restrictions on housing purchases by non-residents, while Hangzhou tightened mortgage loan screening criteria.

HSBC predicted, "Thanks to these policy efforts, the recent upward trend in housing prices has somewhat slowed, and future capital inflows into the real estate sector will decrease, leading to gradual stabilization of the real estate market." However, the Bank of Korea forecasted, "If conditions for economic recovery worsen due to the resurgence of COVID-19, intensified US-China conflicts, and an increase in corporate non-performing loans, there may be limitations in implementing real estate-related policies."

This content was produced with the assistance of AI translation services.