Chinese homebuyers can now get bigger mortgages more easily. The question is why they would want to. It is going to require a change to expectations, not just to the availability of debt, to arrest the housing slump that threatens the country’s economy growth.
It’s no longer true that Chinese people don’t borrow to buy homes. The average purchase of a house is now financed with 26 percent debt, based on national statistics, compared with 22 percent a year ago. But while China’s banks increased their mortgage lending by 18 percent in 2014, the value of housing sold slid by 7.8 percent. Homeowners have been taking on more debt to buy less.
New rules announced on March 30 may not therefore stop the slide. Second-home buyers with outstanding mortgages now need a deposit equivalent to just 40 percent, down from 60 percent. According to a number-crunch by Gan Li at Southwestern University of Finance and Economics, the move could help to shift an additional 3 million houses over five years – or a measly 5 percent increase in annual sales.
It’s hard to fault China’s attempts to go against the cycle. The time to loosen mortgage rules and borrowing rates is when prices and sales are going down. Some Western countries loosened as prices were going up, making bubbles worse. But in a market driven not by fundamentals but speculation – these are second homes, after all – the most important factor is whether buyers believe prices are going to start rising again. That kind of psychological adjustment is not in the gift of bureaucrats.
If China can’t stop the slide, the best thing is to cushion the system against problems. That is already happening, quietly. Banks have been building up their capital, while low reported bad debts suggest that they are practicing forbearance with indebted real estate developers. Those kind of technical tweaks are where China’s planners excel. If only human behaviour were so easy to micro-manage.