China Home Mortgage Finance Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

China Home Mortgage Finance Market - Growth, Trends, Covid-19 Impact, and Forecasts (2023 - 2028)

The Chinese home mortgage finance market was once booming but is now on the verge of a slump. Many homes in China are sold even before they are fully built which is an important source of income for the developers which often allows them to take in hand multiple projects at once. Currently, house prices are decelerating sharply, property demand is decreasing, construction activity is falling rapidly, and all the while mortgage defaults are increasing which is leading to the downfall of this market.

The COVID-19 pandemic had a negative impact on the home mortgage finance market in China. The financial services sector and individuals’ wealth and debt levels are becoming more severe with time. For individual homeowners, mortgage debt was the single largest source of debt and has the greatest effect on their finances, and their ability to stay solvent through wage decreases or wage losses. For lenders, mortgages are typically the most significant asset on their retail banking book, and thus changes in originations, repayment schedules, and default rates will have significant impacts on their profitability and liquidity.

As households and businesses have now begun to fear recession and become reluctant to take on more debt, they are more likely to cut back on spending and investing, potentially leading to a balance sheet recession and accelerating the mortgage rout in China. Also, with less disposable income, homebuyers would have an increasingly hard time servicing their debt, creating even more loan delinquencies and putting more pressure on outstanding mortgages.

Due to the surge in the current property crises in China, the central bank of China is cutting its benchmark interest rate for mortgages to tackle this situation. Loans for pre-owned homes can be taken out at interest rates below 5 percent for first-time homebuyers in cities including Shanghai, Guangdong province's Shenzhen, Heilongjiang province's Harbin, and Jiangsu province's Suzhou.

Home loans account for about one-fifth of the total bank loans in China and with the falling interest rates, loans are being approved more quickly. Low-interest rates are an advantage for people who are wishing to buy a house through a loan. It takes about one month for applicants to receive their loans in the nation's 103 cities, including 19 cities taking less than 20 days. Almost 70 percent of the country’s household wealth is stored in residential property, along with 30-40 percent of bank loan books, while land sales account for 30-40 percent of local government revenue. This is expected to grow this market during the forecasted period.

The government has eased mortgage costs through cuts in interest rates, relaxed some rules on ownership of multiple properties, and urged banks to lend more to homebuyers. This in return is expected to boost overall lending in China. These measures taken by the government are aimed at reviving housing loan demand while keeping a tight grip on developers’ leverage highlighting the delicate balancing act Beijing has faced since the downturn in the property sector last year. The government of China will offer 200 billion yuan ($29.3 billion) in special loans to ensure stalled housing projects are delivered to buyers this will lead to the growth of this market during the forecasted period.

The China Home Mortgage Finance Market is a consolidated market with six large banks dominating the market with about 75% of bank lending as residential mortgages mostly on new build developments and overwhelmingly flats. Some of the major players in this market are China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and HSBC.

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