Normally homebuyers in China need to raise a deposit of 20% or more, however, many are illegally borrowing from the shadow banking system for down payments on properties.Billions of dollars have reportedly been extended to homebuyers by P2P lenders; in January, these loans totalled ¥924m ($142m), 270 times more than last July according to consulting firm Yungcan Group. In a market where many P2P lenders are also real estate agents, there is a strong incentive to make the loans, which are then sold on as wealth management products to individual investors with an annual rate of return of 8-10%. One Shanghai-based real estate agent reportedly said she had seen a five-fold increase in loans for down payments since the end of 2015, largely from speculators. Following a government probe, all 20 P2P lenders that had been offering loans for down payment are understood to have halted the service, however, it is unclear whether loans extended for internal decoration, car purchases and other purposes are being used to fund down payments. Property developers are also allowing buyers to purchase properties with zero collateral, extending 12 month loans for down payments at rates averaging 15%, according to E-house China R&D Institute. Mayor of Chongqing, Huang Qifan (potentially the new top economic adviser to Premier Li Keqianq), recently highlighted parallels between the situation in China and the US sub-prime crisis. However, threem migrant workers are being pushed to buy empty homes in lower-tier cities and the recent lowering of the reserve ratio, releasing $105bn into the financial system, has reportedly resulted in banks cutting the time it takes to approve and lower rates.
Normally homebuyers in China need to raise a deposit of 20% or more, however, many are illegally borrowing from the shadow banking system for down payments on properties.Billions of dollars have reportedly been extended to homebuyers by P2P lenders; in January, these loans totalled ¥924m ($142m), three times more than last July according to consulting firm Yungcan Group. In a market where many P2P lenders are also real estate agents, there is a strong incentive to make the loans, which are then sold on as wealth management products to individual investors with an annual rate of return of 8-10%. One Shanghai-based real estate agent reportedly said she had seen a five-fold increase in loans for down payments since the end of 2015, largely from speculators. Following a government probe, all 20 P2P lenders that had been offering loans for down payment are understood to have halted the service, however, it is unclear whether loans extended for internal decoration, car purchases and other purposes are being used to fund down payments. Property developers are also allowing buyers to purchase properties with zero collateral, extending 12 month loans for down payments at rates averaging 15%, according to E-house China R&D Institute. Mayor of Chongqing, Huang Qifan (potentially the new top economic adviser to Premier Li Keqianq), recently highlighted parallels between the situation in China and the US sub-prime crisis. However, 270m migrant workers are being pushed to buy empty homes in lower-tier cities and the recent lowering of the reserve ratio, releasing $105bn into the financial system, has reportedly resulted in banks cutting the time it takes to approve and lower rates.