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Housing Finance Market Overview
In China, housing finance is mainly raised from banks but the Housing Provident Fund (HPF) system is another source of housing finance to homebuyers. Almost 80 per cent of total housing loans were provided in 2007 by commercial banks, whereof the state-owned banks had a share of over 85 per cent. The HPF system provided almost 12 per cent of all housing loans. The Chinese housing finance industry has grown by leaps and bound in absolute as well as in relative terms. The ratio of mortgage debt to GDP increased from 3 per cent in 2000 to 10.9 per cent in 2007.
The Market from the Perspective of the Demand Side
In China, the usual maximal loan-to-value (LTV) ratio amounts to 80 per cent. However, the average LTV ratio is much lower as the average down payment was almost 40 per cent in 2007. Most loans are variable rate loans.
House Price Development
There is no reliable source for house price changes in China as no official price index exists, and different national as well as international real estate agencies/consultancies provide varying estimates of price moves. The international consultancy Knight Frank reports an annual average growth rate of over 7 per cent from 2005 till the peak in the middle of 2008. However, house price increases in the major metropolitan areas by far outnumbered this growth rate. House prices have fallen since then till the first quarter of 2009 by about 4 per cent.
Special Characteristics of the Market
China has a Housing Provident Fund (HPF) system. Out of a pool of funds contributed (compulsory) by employers and their employees, a HPF provides long-term financing to employees of HPF members for the purchase, building, rebuilding and repair of owner-occupied houses or apartments. Alternatively, contributors are allowed to withdraw their HPF savings when they retire. As of the end of September 2007, the number of employees participating in the HPF system reached 100 million, deposits totalled more than RMB 1.5 trillion, in cumulative terms, and outstanding HPF loans reached RMB 472 billion.
In the region of Tianjin the Sino-German Bausparkasse operates along the lines of the German Bauspar system.
The HPF is funding its mortgage market activities with its member deposits solely. There were no statistical data available for the banks but it can be assumed that due to the very high saving rate deposits and current checking accounts offer a stable, low cost source of funding which is predominantly used by the banks. Securitisation accounts only for a very small portion of the market and is limited to pilot projects so far. The financial crisis in the United States has hindered steps the regulators planned to loosen risk control and fully open the securitisation market.