BEIJING (Reuters) – China’s newest steps to revive its struggling property market may pose dangers to banks working in lower-tier cities, S&P International stated on Monday.
The measures introduced earlier this month akin to reducing down fee necessities and eradicating the ground for mortgage charges are anticipated to briefly enhance property demand, however the elevated leverage may additionally trigger an uptick in mortgage defaults, in response to a S&P International report.
Property costs in smaller tier-three cities are anticipated to say no about 14% by means of the 2024-2025 interval, the report stated. This might probably push some homebuyers into detrimental fairness conditions, the place their excellent mortgage balances exceed the worth of their properties, it stated.
Consequently, some homebuyers might stroll away from their properties and default on the mortgages, the report stated.
“The removing of the ground on mortgage charges will even give lenders much less buffer to soak up potential losses when defaults do occur,” stated S&P International Scores credit score analyst Ryan Tsang.
“Banks must incur further prices to pursue defaulters’ different belongings to mitigate the losses in such circumstances,” stated Tsang.
A lot of cities throughout China, together with first-tier Shanghai and lower-tier Wuhan and Changsha, have lowered down fee and mortgage mortgage rates of interest in response to the nation’s “historic” steps introduced on Could 17 to stabilise its crisis-hit property sector.
The decrease restrict of down fee was lower to fifteen% from 20% at a nationwide stage for first-time homebuyers and to 25% from 30% for second-time homebuyers.