(Economic Observation) Putting "Gray Rhino" in a Cage, China's Real Estate Financial Prudent Management Curtain Opens

　　China News Service, Beijing, February 3 (Reporter Pang Wuji) China's real estate market is undergoing a dramatic change.

　　In the first month of 2021, several first- and second-tier cities such as Shenzhen, Shanghai, Guangzhou, Xi'an, Hefei, etc. reported that mortgage quotas were tight and interest rates were rising. Individual banks were exposed to have stopped lending.

At the beginning of each year, when the amount of mortgages is usually the most abundant, financial control is actually hidden behind this anomaly.

　　On the last day of 2020, the People's Bank of China and the China Banking and Insurance Regulatory Commission issued a notice, deciding to establish a real estate loan concentration management system for banking financial institutions, and to set the upper limit of the proportion of real estate loan balance and the upper limit of personal housing loan balance.

This policy has been referred to by the industry as the "two red lines" for banks.

　　The new regulations recently promulgated by the Shanghai Banking and Insurance Regulatory Bureau are a manifestation of the implementation of the "two red lines".

Shanghai stated that it strictly implements real estate loan concentration management, strictly examines the source of funds for down payment and solvency reviews.

　　Fang Ling, director of corporate research at the Crane Research Center, pointed out that it is in line with the previous financing control of the real estate company's "three red lines", "reducing the scale of financing trusts" and "suspending private placement of non-standard debt business". The "two red lines" are intended to prevent excessive financialization of the real estate industry.

However, due to the small number of banks exceeding the standard, the relatively limited pressure drop ratio, and the adjustment transition period for new regulations, Fang Ling believes that the short-term impact on the real estate industry is controllable.

　　The "two red lines" of banks and the "three red lines" (key real estate companies' fund monitoring and financing management rules) policy introduced in August last year constitute the main tool for the prudent management of China's real estate finance.

Different from monetary policy, the prudential management of real estate finance mainly focuses on adjusting the down payment ratio, restricting the proportion of real estate loans, and restricting the financing scale of real estate enterprises. The focus is on stabilizing credit growth and adjusting the leverage ratio.

　　Liu Shui, deputy research director of the Corporate Business Department of the Zhongzhi Research Institute, believes that the delineation of the "five red lines" will make 2020 the first year of the prudent management of China's real estate finance, which is a milestone for the construction of China's real estate system.

The real estate system presents the characteristics of the context from "housing system reform" (1998) to "land system reform" (2002) to "financial management reform" (2020).

　　Yu Liang, chairman of the board of Vanke Group, also said that the "three red lines" have no less influence on the real estate industry than the land bidding, auction and listing system in 2002, which means the end of the era of financial dividends in the real estate industry.

　　Under the prudent management of real estate finance represented by the "five red lines", what changes will happen to the Chinese property market?

The industry generally believes that "money roots" and "ground roots" are the lifeblood of the property market.

The prudential management of real estate finance is expected to control the "money."

　　A report recently released by the Zhongzhi Research Institute stated that in the past 15 years, financial policies have had significant effects on the real estate market.

This report reviews the policies and their effects concerning the prudential management of real estate finance from 2005 to 2019.

The report believes that the increase in the financial prudence index will significantly inhibit the rise in housing prices and the demand for commercial housing, while also inhibiting the growth of housing enterprises.

　　Liu Shui said that the market will show three major trends in the future: First, a weak cycle. Under prudent financial management, a large amount of funds will be prevented from flowing to the real estate market, so as to avoid the real estate market from skyrocketing and falling, and weakening the real estate cycle.

　　The second is "slow cow".

According to estimates, China’s urbanization rate may reach 70% in 2030. In the later stage of urbanization, GDP will continue to grow at a medium-to-high speed in the next 10 years, and the real estate market still has room for upward development. However, under prudent financial management, China The real estate market may be slow.

　　Third, urban differentiation continues, and the real estate market trends in different cities will continue to diverge significantly.

　　Since the 2008 financial crisis in the United States, macro-prudential policies have received more and more attention from countries.

The United States, the European Union, the United Kingdom, South Korea and other economies are actively using real estate financial prudential policies to curb the excessive prosperity of the property market.

In recent years, Chinese officials have repeatedly emphasized the implementation of the real estate financial prudential management system.

For example, the 2021 People's Bank of China Working Conference held in January proposed to implement the long-term real estate mechanism and implement the real estate financial prudential management system.

　　Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, once wrote that real estate is the biggest "gray rhino" in China's financial risks at this stage.

He pointed out that before the 2008 subprime mortgage crisis, US real estate mortgage loans exceeded 32% of GDP that year.

Currently, China's real estate-related loans account for 39% of banking loans, and a large amount of bonds, equity, trusts and other funds enter the real estate industry.

Putting "gray rhinos in a cage" may be a direct goal of the prudent management of real estate finance.

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