Banking Greed
Another major Chinese bank appears to be circumventing Government attempts of reducing speculation in the property market by adopting a relaxed interpretation of a recent directive.
Bank of Communications has joined ICBC and China Merchants Bank in relation to a new law that requires more stringent financials for those people seeking a second, third or fourth mortgage.
The situation has arisen because China’s central bank, the People’s Bank of China, was strangely ambiguous in how past ownership is assessed.
Mortgages are a fundamental component of retail banking profits in China, and it seems the Government’s move to take the heat out of the highly speculative property market was a softly-softly one.
The new rule was introduced in September and requires mortgage holders who apply for additional home loans to front up a deposit of at least 40 per cent along with payment of a 10 per cent premium on its interest rate.
Some banks, China Construction Bank and Bank of China for instance, narrowly interpreted the rule by including spouses and family members in the definition of second and subsequent loans.
However the Bank of Communications, along with ICBC and China Merchant Bank, only takes into account the borrowers and co-borrowers on a given loan application – leaving the door open for people to purchase properties through their spouse, immediate family and/or extended family without incurring the draconian like and less attractive requirements of the new law.
The Chinese Government may yet move to provide a more tight definition of the subsequent mortgages directive, and was perhaps waiting to see if it’s first and softer approach would take any steam out of the market.
Banks in China are certainly a strong group with deep ties to Government in China, and it will be interesting to see how the Government reacts given property markets are still buoyant.
Added to this is the backdrop of a continued skyrocketing share market, whereby only this week, for example, energy firm PetroChina listed on the Shanghai stock market and saw its price jump from 16.7 Yuan to 48.8 Yuan – a near 200% rise in less than 6 hours trading.
With investors winning this much the more stringent deposits required to invest in second and third mortgages suddenly don’t appear as astronomical as originally thought.
