Shenzhen housing prices have undergone an unusually strong rally, raising flags to regulators about potential relief-linked fund misuse.
Shenzhen’s housing market has been a leader amongst tier-1 cities in China, with its existing condo prices registering a 1.6 percent month-on-month increase – three times the national average of the largest cities. In response, the central bank’s Shenzhen branch has issued a notice to commercial banks in the city to crack down on potential abuse of relief funds, according to a «Caixin» report.
The focus, in particular, was on collateralized business loans linked to existing properties.
Leverage Up
Business loans based on properties used as collateral will then be used to once again invest in the housing market, the report added citing unnamed sources. This has led the central bank to instruct local lenders to focus not only on the size of outstanding loans and borrowers' operating conditions but also on how long the collateralized property was owned by the borrower.
While seeking to limit the unnecessary flow of relief money into the housing market, regulators also said that such measures would disrupt real support for small businesses.
Despite the People's Bank of China boasting about its monetary effectiveness to convert stimulus into loans – a senior official recently said in public that the Chinese central bank was 10 times more effective than the Fed – the conversion of loans into actual economic activity remains challenging with a series of risk being exposed during the current pandemic.
