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Make housing credit move more practicable

By Ma Hongman (China Daily)
Updated: 2008-11-07 14:44

The much-anticipated provision on housing lending recently issued by the People's Bank of China now faces an embarrassing situation.

According to the country's central bank, domestic commercial banks could extend to ordinary debtors a maximum 70 percent off their basis lending ratio to buy the first self-accommodating home or to buy a house for the purpose of improving previous living conditions as of October 27.

Also, the down payment ratio could be lowered to 20 percent. Within days of the announcement of the long-awaited policy, domestic commercial banks, the real operators of the central bank's move, should have rushed to work out details on how to implement relevant preferential interest rate measures to boost their bleak business as the real estate industry is still in a slump.

However, none of these commercial banks has so far made a substantive move forward in the regard, thus plunging the country's whole housing lending business into an impasse.

Superficially, the reason for the sluggish progress made in the implementation of the new housing loan package can be attributed to the equivocal definition of some key terms contained in the article, such as the terms of self-accommodating homes and common commercial houses. An unambiguous definition of these key words will be crucial to deciding who on earth are lucky to benefit from the favorable measure. Such clarity will also help determine whether the previous limits imposed by the government on people's purchase of the second houses, which is believed to be mainly for the purpose of speculation, will be modified. The equivocal nature of the definition will not only negatively affect market analysts' observance of the trend of the country's real estate market but also hinder smooth implementation of the new loan policy.

Past experiences indicate that any controversial policy always needs a final voice from the policy maker to clarify it. A typical case is the country's restrictive measure on buying a second home. After the enactment of this stipulation, domestic commercial banks adopted different understandings and different implementation standards, causing certain confusions in the market. But two months later, the relevant authorities issued a set of guiding administrative standards to unify its implementation. The representative case seems to tell us that we should have enough patience to wait for an authoritative and final non-controversial definition on the central bank's new housing loan policy.

It is known that the implementation of any credit policy can only be realized through the channel of commercial banks. It would be difficult for the policy to produce positive results if these banks take an unresponsive or hostile attitude. In view of this, the relevant authorities should work out a set of details to make the latest housing credit move more practicable. At the same time, they take into consideration the interests of domestic commercial banks so that an otherwise hopeful policy is not aborted in its implementation.

In laying down the latest guideline, the central bank obviously did not pay due attention to how to preserve the fundamental interests of profits-pursuing commercial banks.

According to adjusted interest rates published by the central bank, the annual basis interest rate for 5-year or longer-duration lending is 7.20 percent, and conditional home buyers can enjoy a preferential 70 percent discount, with the real interest rate being 5.04 percent. However, the interest rate for 5-year deposit is as high as 5.13 percent, 0.9 percentage points higher than that of the lending of the same time span. That means that the profits domestic commercial banks gain from their five-year lending cannot offset the interest they should pay to depositors who save money in them on the same long-term basis. In the market economy, it is understandable none of the market players hopes to do a losing business.

Despite belonging to State-owned holding companies that should take on certain social responsibilities in addition to pursuing economic gains, domestic commercial banks, however, are all listed ones at home and abroad. It is expected that their shareholders at home and overseas would resent it if they suffered losses in the implementation of the new lending policy in accordance with the central bank's provisions on a long-term basis. It is the relevant government departments that shoulder the responsibility for reactivating the shrinking transactions in the current real estate market to spur economic growth. We should not force this kind of social responsibility on the shoulders of market entities.

Upon the publication of the central bank's latest housing lending policy, some brokerage firms complained in their reports that the move is aimed at squeezing the profits of the banking sector. It is estimated that this policy, if put into effect, would produce a maximum 15 percent of negative influence upon the profit of domestic commercial banks in the next year. In fact, such a pessimistic estimate has added to the continuing fall of banking shares.

In the market economy, market reactions serve as the main wind vane of any policy. Domestic commercial banks' unwillingness to take concrete steps toward working out details on the central bank's housing lending policy seems to tell us that the policy is yet to be improved. We look forward to the central bank making some necessary adjustments and improvements to steer the move to its desired destination.

[The author Ma Hongman is an anchorman with China Business Network, a TV network based in Shanghai.]