How to Pop China’s Housing Bubble – High Down Payments
Unlike in America, where central bankers sometimes encourage people to take on exotic mortgages during the ramp up of a bubble, central bankers in China have cahones.
How so? They’re even thinking about raising the down payment on purchases of existing homes to 50%.
China Wants to Mandate 50% Downpayments on Houses?
Yup, you read that right. It’s only a possibility, and you’d need about as much money as the poor guy in the picture above, but raising the down payment to 50% would certainly choke off any chances of China’s Housing Bubble growing much from here (wouldn’t you think?). Here are the specifics, translated from this article at Xinhua.
China’s Central Bank Lifting Down Payment Requirement on Existing Home Sales to 40%
According to the September 18th edition of Shanghai Securities Newspaper, Chinaâ€™s central bank is currently lifting the down payment requirement on existing home sales to 40% and on commercial property to 50%. But it seems that even before carrying out this new policy, there was already a proposal to lift the down payment requirement on existing homes to 50%.
One industry insider reasoned that raising the down payment requirement on individual residences would force ordinary buyers into choosing smaller residences. If an ordinary buyer wanted to pay a down payment of less than 300,000 RMB in Shanghai, they would only be able to buy in the suburbs, or perhaps only in the exurbs. And because the amenities in the exurbs are still quite lacking, the cost of living there is commensurately higher than just the real estate cost alone.
Raising the Down Payment on Existing Home Sales in China – Not an Empty Rumor
According to Shanghai Securities Paper, whether or not to further raise the down payment on existing home sales is still under discussion. Similar proposals under consideration include raising the interest rates on residential mortgages, or reducing the total loan amounts (funding) that developers could receive. Prior to this most recent report, there were rumors that the required down payment on new home sales would be raised to 50%, but a member of Chinaâ€™s central bank clearly denied these reports, stating: â€œDown payments on new homes being raised to 50% is an impossibility.â€ But this person did not comment on the possibility of the down payment for existing home sales being raised this high.
Prior to this report a number of provinces and cities within mainland China had reduced the amount of residential loans banks were issuing, the main reason being that many banks had already neared or reached their total yearly loan restrictions.