Colliers: New lending due to economic fundamentals

SHANGHAI: Much of the new lending currently taking place in China is due more to banks' willingness to expand credit in the market as a result of strong economic fundamentals, rather than a loosening of loan policies for homebuyers, said Lina Wong, Colliers International's managing director for East and Southeast China.

Wong said that as the People's Bank of China continues to tighten monetary policy to prevent inflation, new residential mortgage growth would be driven by strong economic fundamentals and not by central bank induced liquidity.

"In the past year, the People's Bank of China has increased bank reserve ratios, decreasing the total amount of available credit in the market. Subsequently, there has been an overall drop in total loans made to residential consumers," Wong said.

She said that despite the correlating drop in lending, many Chinese banks remain well capitalised and have the ability to write new loans if deemed profitable.

"With regards to the attractiveness of writing new mortgage loans, many second tier cities — such as Nanjing, Chongqing and Chengdu — have housing affordability indicators showing multi-year lows recently, meaning that household income is growing faster than residential property prices," she said.

As a result, many banks would have an easy time expanding credit in these markets, as borrowers are deemed to be more creditworthy.

Wong said that recently enacted policy measures have shown little evidence that the policies are beginning to loosen, adding that any loosening is likely the result of lack of enforcement at the local level, and not due to a change of direction by the central government.

She added that there is further discussion at the central government level on how to continue to prevent land developers from banking idle land and to encourage more affordable housing.

"Keeping these directives in mind, as well as the already historically high property prices in first tier cities, it seems extremely unlikely that government policy will provide any positive support to the housing market during 2010," Wong said.