(Yicai Global) April 21 -- Shenzhen’s real estate market is defying a nationwide slump and raising concerns among regulators that low interest-bearing business loans are being used unlawfully as mortgages.
The People’s Bank of China has asked Shenzhen’s banks to investigate if any commercial loans are being used as illicit mortgages, the central bank’s local branch said yesterday.
House prices in Shenzhen rose 1.6 percent last month from February, the highest gain in a survey of residential house sales across 70 cities conducted by the National Bureau of Statistics. Five-times more online pre-owned property transactions took place in March than in February, amounting to 8,462 units.
In the wake of the Covid-19 epidemic, the hi-tech metropolis has been issuing low interest loans to support businesses. Company owners who use their fully-paid property as collateral can borrow funds at an annual rate of between 3.9 percent and 4.5 percent, around 70 percent of standard mortgage levels. Micro and small firms are also eligible for even cheaper loans with an annual rate of 2 percent, the Guangzhou Daily reported, citing a banking sector insider.
Some business owners have been taking advantage of these subsidies to use these loans to buy property. But any institutions or individuals found to be using low interest loans for undeclared house-buying will be punished according to the law, the city’s Service Bureau for Small and Medium-Sized Enterprises said yesterday.
Banks should check if company owners have bought any property since the outbreak of Covid-19 on Jan. 25, whether they have leveraged these properties to take out more loans, which subsidies they have applied for and what the borrowing cost on the loan is expected to be, the PBOC’s Shenzhen branch said.
They should also conduct background checks of these debtors to verify if they have any other mortgaged properties, when their companies were established and the authenticity of their businesses, it added.
Last November, Shenzhen abolished the luxury housing tax on apartments within a certain size. A pre-owned property price alliance formed by some homeowners that month also affected market expectations and led to an upswing in prices for second-hand real estate in December, said Yan Yuejin, head of research at the Shanghai E-House Real Estate Research Institute.
Editor: Kim Taylor