Forced loan suspension: a grain of dust, a mountain!

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Author: Qinghe President wechat official account: zhibenshe (id:zhibenshe0-1)

Recently, owners of uncompleted residential flats around the country have announced that if the project is not fully resumed, it will be forced to stop repaying the loan. The tide of compulsory loan suspension has a trend of “city to city”, involving Zhengzhou, Shangqiu, Xinxiang, Nanyang, Zhoukou, Wuhan, Nanchang, Changsha, Taiyuan, Jingdezhen, Chongqing and other cities, and dozens of suspended or uncompleted buildings (increasing).

Savings and houses are the foundation of family survival. For Chinese families, a house is not only a place to live, but also the savings of two families and two generations, the children’s degree room and all the expectations of their families. As long as the building can be delivered, the “six wallets” tighten their belts and provide loans to the bank, which will not be forced to stop lending at the great risk of credit investigation and abandoning the down payment.

This round of real estate crisis is affecting the uncompleted residential flats, and the biggest victims are undoubtedly thousands of families. A grain of dust from the grand narrative fell on them and turned into a mountain. Faced with the lack of real estate and finance, they act in groups and stop losses violently. If the tide of forced loan suspension continues to spread, the real estate crisis may spill over to the banking system.

Such collective action is rare in financial markets. How to treat the collective forced loan suspension? What’s the problem? How to supervise the property market?

Logic of this article

1? Loan suspension trend

2? Bank risk

3? Real estate market situation

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Loan suspension trend



Failure to repay the loan, credit investigation and loss of down payment are costly events of default. This time, the owners’ collective unilateral announcement of compulsory loan suspension really shocked the market. Some people believe that it is the developer who cannot deliver the building and defaults, which has nothing to do with the bank. The owner should perform the loan contract. However, due to the uncompleted development and the indefinite delivery of the building, the owners have to bear heavy loans every month, which is hard for anyone.

The key point is the house purchase contract between the owner and the developer and the loan contract between the owner and the bank. Are these two contracts independent?

If the owner borrows 1million yuan from private party A and uses the money to buy a suite from the developer the next day, the two contracts are independent, and there is no factual relationship between Party A and the developer. However, the house purchase contract and the bank loan contract are not independent of each other. The bank loan contract is based on the house purchase contract, and there is a factual relationship between the bank and the developer. The house purchase contract is similar to the master contract, and the loan contract is similar to the slave contract. Legally, this definition is not necessarily accurate, but the two contracts are actually related. For example, the loan provided by the bank is a special loan for house purchase, and the bank must issue the loan after the building is capped; Another example is that the bank is the supervisor of special funds, so it must put the loan funds into the pre-sale supervision account and fulfill its supervision obligations.

Today, the main reason for the collective mandatory suspension of loans by owners is that banks violate these related facts.

Many notices of compulsory loan suspension reflect:

As a lending bank, it illegally issued mortgage loans before the main structure of the house was capped;

As a lending bank, it illegally transferred the mortgage loan funds into a non regulatory account.

As a pre-sale capital supervision bank, it did not actively perform its capital supervision obligations, resulting in unknown pre-sale capital expenditure.

The above information will be verified by specific projects. In practice, some banks may have problems such as illegal lending in advance, special funds not entering the regulatory account, and failure to fulfill the regulatory obligations of special funds. In fact, the direct reason for many uncompleted projects is that the developers got the illegal loans in advance and misappropriated the pre-sale funds.

In the wave of real estate spring tide launched in 2014, Zhengzhou and other cities are engaged in the monetization of shed reform, and Evergrande and other developers are extremely aggressive and take the way of high turnover to occupy cities and lands. The so-called high turnover, first, from land acquisition, loan, housing construction, sales to loan repayment, is completed in a relatively short period (such as 6 months); Second, before this project is completed, use the sales collection funds to enter the next project, so that the project can quickly cycle and roll after the project.

This process involves two problems: first, misappropriation of sales receipts, including pre-sale funds; Second, continue to increase leverage. Once encountering the credit crisis, the capital chain of real estate enterprises is easy to break, and the high turnover is unsustainable, a pile of uncompleted residential flats will emerge. In this wave of real estate tide, Evergrande and other developers continue to have high turnover in the so-called new first tier cities and third and fourth tier cities. Now there are many uncompleted residential buildings in Zhengzhou, of which Evergrande has more buildings.

The bank is actually the “engine” of this high turnover mode. If the bank provides illegal loans to developers, makes loans in advance without capping, and fails to put special funds into the regulatory account, then the bank is equivalent to amplifying the risk and has unshirkable responsibility. According to the “notice on Further Strengthening the management of real estate credit business” and relevant regulations of the central bank, banks “can only issue personal housing loans to individuals who purchase houses whose main structure has been capped”, “if enterprises misappropriate loans for other purposes, the handling bank shall recover the misappropriated funds within a time limit”.

If it is a normal market transaction, the owner needs to bear the transaction risk. Buying a legal futures house is similar to futures, and the risk will be greater. Nowadays, the owners of uncompleted residential flats are also bearing the corresponding risks, but their appeal is that the banks that illegally lend and fail to regulate should jointly bear the risks and stop repaying the loans.

Can the owner apply to the court to terminate the loan contract on this ground?

If the uncompleted project cannot be delivered, or even the developer goes bankrupt, the owner can apply to the court to terminate the house purchase contract and loan contract. This is the normal way. If the bank has obvious violations, the court will have a greater opportunity to accept it. However, according to the experience of such judicial decisions, the possibility of the court supporting the owner is very low. Although there was a case in Zhejiang in February this year to support the owner to stop lending, it is a question whether the court dares to open this hole at present.

From the perspective of safeguarding rights, the second best way for owners is to collectively negotiate and negotiate with banks and regulators, reach a loan Suspension Agreement, maintain the loan contract, but postpone repayment. In this way, regulators and banks have pressure to promote the resumption of the project. The problem of uncompleted residential flats is a very specific and complex case. There are not many consistent methods, so we can only seek territorial management and local coordination.

From the experience of dealing with uncompleted residential flats, if the developer goes bankrupt, runs away or the funds are misappropriated, the building has not been capped, which is very difficult to solve. Real estate is a high investment and high-risk project. After the project is seriously uncompleted, the capital hole is huge, and the debt disputes are complex. It is difficult to find a third party to take over the offer, and the local power to resolve is insufficient. Some cities still have uncompleted residential flats in the 1990s, and this round of real estate foam has not been resolved.

If the developer stops work because of the tight capital chain, and the project progress is OK, if the local government can promote the bank to continue to lend to it, it may also have the opportunity to resume construction and delivery. Collective action in this economic system is actually rare, but it has its special role – forcing the relevant responsible parties to solve it together. Whenever there is a chance, I suggest the owner try to fight for it.

Speaking of this, I feel sad. In China, housing is the livelihood of the people: it is the urban ownership of migrant workers, the qualification of children to go to school, the condition for young people to talk about, and almost all the assets of middle-class families. Over the years, Chinese families have worked hard to live in peace. For this house, I spent the savings of two generations, sacrificed my parents’ pensions, overdraw future consumption, and bore 30 years of debt. When the House fails, the hopes of some families are dashed.

In fact, Chinese families are willing to tighten their belts whenever they can deliver a building, because we need and care too much about the house. Credit is the last asset of an individual, and the cost of breaking it is also very heavy in China. But when hope is dashed, breaking promise becomes less terrible.

A grain of dust of the so-called grand narrative, falling on the head of an individual, is a mountain.

Bank risk


In fact, the interests of banks are highly tied to the real estate market. If the tide of loan suspension and supply interruption intensifies, the risk of uncompleted residential flats may overflow to the banking system.

According to incomplete statistics, dozens of real estate owners published the notice of compulsory loan suspension on the Internet, involving more than 30billion housing loans. Although we cannot know how many home buyers will actually stop lending and default, there are two basic facts: first, the number of uncompleted residential flats will increase, and the number of loan suspension and default will also increase; Second, as the number of loan suspension and default increases, the non-performing rate of banks will also increase.

We know that real estate loans (including real estate enterprise loans and personal housing loans) are the main body of commercial bank loans. Since 2014, with the continuous rise of house prices, the proportion of personal housing loans has increased rapidly. According to the information released by the central bank, from 2014 to 2017, personal housing loans accounted for 68%, 78.8%, 89.7% and 74% of the loan increment of the household sector, respectively, accounting for 23%, 26%, 45% and 39% of the bank loan increment of the year. This does not include loans from real estate enterprises. From this ratio, we can see that credit has been blowing this wave of real estate tide at full power.

In the second half of 2020, the regulatory authorities began to restrict loans in the real estate market, including three red line policies and five credit policies. The five grade loan restriction policy divides banks into five grades to customize the upper limit. For example, the first tier of large Chinese funded banks: real estate loans account for 40% of the upper limit, and personal housing loans account for 32.50% of the upper limit; For another example, the fifth tier of rural banks: real estate loans account for 12.50% of the upper limit, and personal housing loans account for 7.50% of the upper limit.

After the liquidity was restricted, the loan scale and proportion of the real estate market declined. According to the “statistical report on loan investment of financial institutions in 2021” released by the central bank, in terms of increment, RMB loans increased by 19.95 trillion yuan in 2021, of which personal housing loans increased by 3.81 trillion yuan, accounting for 19.1% of incremental loans, down 7.2 percentage points from the previous year, lower than the level in 2014. In terms of stock, at the end of 2021, the balance of real estate loans was 52.17 trillion yuan, an increase of 7.9% year-on-year. Among them, the balance of real estate development loans was 12.01 trillion yuan, an increase of 0.9% year-on-year; The balance of personal housing loans was 38.32 trillion yuan, an increase of 11.3% year-on-year. The proportion of the balance of real estate loans in all loans fell to 27.07%. In 2022, from January to may, real estate development enterprises paid 6040.4 billion yuan, a year-on-year decrease of 25.8%. Among them, domestic loans were 804.5 billion yuan, down 26.0%.

The real estate market is in a liquidity dilemma, and Evergrande and other large developers are at risk of debt default. Developers defaulted on their debts, a large number of projects were shut down, and the uncompleted residential flats crisis emerged, which further worsened real estate sales and personal housing loans. Data show that from January to May this year, deposits and advance receipts amounted to 1914.1 billion yuan, down 39.7%; Personal mortgage loans were 978.5 billion yuan, down 27.0%.

However, three facts deserve attention:

First, from the perspective of loan stock, the proportion of real estate loan balance in all loans is still not low, accounting for 27.07%.

Second, although major banks have been reducing the proportion of real estate loans in the past two years, the non-performing rate of real estate is rising. In 2021, the new real estate loans of the four major banks accounted for 5.7% of the total new loans, down 0.39 percentage points from 2020. However, the proportion of new non-performing loans in the real estate market rose to 12%, an increase of 4.3 percentage points over 2020.

Third, it is easy for banks to trigger the risk of real estate debt by slamming on the brakes, which will lead to a series of uncompleted residential flats and credit default events. In the 2014 real estate foam, Evergrande and other developers were very aggressive, and many of them were urban commercial banks that provided loans. As of June 30, 2020, Evergrande’s credit bill showed that Minsheng Bank had the largest loan balance of 29.3 billion, followed by Agricultural Bank of China, followed by Zheshang Bank, many of which were urban commercial banks.

In March this year, the central bank released the rating results of financial institutions of the central bank for the fourth quarter of 2021. The evaluation results show that the total assets of 316 high-risk institutions account for only 1% of the total assets of the banking industry. However, 10% of urban commercial banks are at high risk, with assets accounting for 3% of all urban commercial banks; In addition, rural banks have the highest risk, with 103 high-risk institutions, accounting for 7% of assets.

Recently, a number of rural banks in Henan have experienced withdrawal problems. The problems of such rural banks are mainly the capital transfer of individual private shareholders and illegal lending. The risk of urban commercial banks is mainly aggressive lending to real estate enterprises. By the end of 2021, the non-performing rate of commercial banks was 1.73%, down 0.11 percentage points from the end of 2020; However, the non-performing rate of urban commercial banks is deteriorating.

I use the research data of Caijing magazine Caijing Mayflower (analysis of non-performing rate of baijiacheng commercial banks). According to the data, in 2021, the non-performing rate of Liaoshen bank was 6.02%, that of mengshang bank was 4.15%, and that of Erdos bank was 3.97%. As the loan risk of real estate enterprises has increased significantly, the non-performing rate of the real estate industry of urban commercial banks has also increased. The non-performing rates of the real estate industry of Jinshang bank and Jinzhou bank were 10.29% and 9.77% respectively, an increase of 10.01 percentage points and 4.32 percentage points respectively over the end of 2020. In addition, the non-performing rate of the real estate industry of Bank of Suzhou rose to 6.65%, Bank of Tianjin to 5.19%, Bank of Chongqing to 4.71%, Bank of Jiangxi to 4.5%, Bank of Zhengzhou to 3.47%. The above non-performing rate of the real estate industry is mainly “contributed” by real estate enterprises.

It is worth noting that personal housing loans have always been the stabilizer of bank credit quality, and the non-performing rate is lower than that of manufacturing loans, corporate loans and consumer loans. By the end of 2021, the non-performing rates of personal housing loans of Bank of Jinzhou, Bank of Luzhou and Bank of Gansu were 1.58%, 1.34% and 1.3% respectively, and the non-performing rates of other banks were lower than 1%.

If the tide of uncompleted residential flats leads to the tide of collective loan suspension and supply interruption, the default rate of personal housing loans will certainly rise, which will touch the stable period of bank credit quality. In recent years, regulators have been emphasizing on avoiding the spillover of real estate risks to the banking system and avoiding systemic financial risks. Because behind the bank risk is the deposits of countless families. The bottom line of non-performing rate of personal housing loans is the bottom line of systemic risk of banks. From developers and property buyers to banks and depositors, it is difficult to be alone in this era.

Real estate market situation


The forced loan suspension also made people re-examine the real estate and property market policies.

This round of real estate foam is high, and high-priced housing really makes people complain incessantly. When the real estate market regulation brakes sharply, Evergrande and other large developers encounter a debt crisis, many people applaud it one after another. However, economy is a system. Behind the massive bankruptcy of real estate developers is the fact that suppliers and investors have no way to collect debts and lose money; Construction workers are unemployed and in arrears; It is uncompleted residential flats one after another, and the wealth and happiness of thousands of families have come to naught. Of course, it may also be the rise in the non-performing rate of the real estate industry of commercial banks. If the bank is in trouble, it will affect the deposit safety of depositors. In this way, no one can retreat and watch the fire from the shore.

This is not to say that developers cannot go bankrupt, nor that house prices can only rise but not fall, but to ask a question: how to regulate the real estate market.

The current real estate problem can be traced back to the 2008 financial crisis. After the crisis broke out, major countries in the world implemented stimulus policies. By 2012, the marginal recession of stimulus policies led to global overcapacity, the price of crude oil and raw materials fell sharply, and PPI fell to a negative number. In 2014, the international crude oil price plummeted by 45%, domestic raw materials such as real estate, steel, cement and coal were seriously overcapacity, some central enterprises turned negative profits, and PPI fell again. At this time, the domestic supply side reform was launched with the purpose of de stocking, de capacity and de leveraging. How do I get there?

Real estate was a high inventory market at that time, and it was also a “large household” that consumed the production capacity of steel, cement, coal, glass and chemical raw materials. As a result, the country started the monetization of shed reform, starting with the real estate market to destock. The so-called monetization of the shed reform means that the government directly compensates the relocated households in the form of money, and the latter takes the money to the market to buy a house.

In April 2014, the Central Bank of China created a tool called mortgage supplementary loan (PSL). The central bank provides loans to policy banks (such as CDB) through PSL, and CDB then provides loans to local governments. According to the data, in July of that year, the Central Bank of China injected a three-year 1 trillion PSL into CDB, with an interest rate of 4.5%, to support the renovation of shanty towns, affordable housing projects, etc. In June 2015, the central bank once again conducted PSL operations on policy banks, and the interest rate was reduced to 3.1%, with a scale of 1.5 trillion. The closing balance of PSL increased rapidly from 645.9 billion in May 2015 to about 2trillion in 2017.

Most of the mortgage supplementary loans are invested in third and fourth tier cities and new first tier cities, which is equivalent to targeted loose money for the real estate market in these cities. This wave of huge funds has completely activated the national real estate market. Large developers opened a high turnover mode to attack the city and pull out the stockade. Medium-sized real estate developers realized that this was the last Carnival and desperately wanted to run into the so-called safe area of the top 30. Zhengzhou, Wuhan and other cities have launched the slogan of “new first tier” and “strong first tier” cities, competing for talents and attracting population across the country, and developing new houses in new towns on a large scale. At the same time, the third and fourth tier cities swarmed, houses went to the countryside, farmers went to the city, and house prices rose. Commercial banks took over the firepower of policy banks and made large-scale loans. The credit increment of the real estate industry accounted for more than half, and urban commercial banks wantonly extended credit to the real estate market. At the same time, the income of land transfer fees of local governments has also increased on a large scale. In this way, a tide of real estate has formed, and the housing prices in cities across the country have generally soared.

With the spring tide, excess capacity such as steel and cement has fallen, PPI has rebounded rapidly, the operating conditions of the central bank have improved, and the inventory of real estate has also decreased. However, the leverage of real estate enterprises, households and the government is higher, and developers can’t stop in the high turnover.

Next is the global pandemic of the COVID-19, and house prices in Shenzhen are singing against the trend. Then, the national property market ushered in strong supervision, including three red lines, five loan restrictions, centralized land supply, and dollar debt supervision.

Last year, developers suddenly got stuck in the movement of high turnover and high leverage, and there was a large rollover scene. They directly entered ICU, and a credit liquidity crisis broke out. This year, the credit epidemic crisis and business liquidity crisis hit at the same time, and the credit of the real estate market has deteriorated. In the bond market, bonds collapsed, making it difficult for real estate enterprises to finance; In the credit market, asset prices have fallen, developers’ credit has declined, banks have been cautious in lending, and restrictive policies have not been lifted; In the housing market, investors’ expectations for real estate have reversed, and buyers are worried about stepping on thunder and destroying the tail building. The market has fallen into a debt spiral and is on the verge of credit bankruptcy.

This year, there are various kinds of market rescue policies in various places, including relaxing and lifting the restrictions on sales and purchase, reducing the interest rate and down payment ratio of housing loans, increasing the amount of provident fund loans, issuing the order of limiting the decline of the property market, encouraging public units and state-owned enterprises to buy houses, and selling houses at the grassroots level in the countryside, etc. Even, there is a trend of subprime lending, such as down payment.

Now, we need to think about how real estate can return to normalization?

This is related to the macro-economy and bank safety, as well as the housing security and asset safety of thousands of families.

The so-called normalization does not mean that the real estate enterprises are not bankrupt, nor does it mean that the price is stable, but that every market subject can freely trade at the price that they expect to agree. Real estate prices have risen and fallen, with buyers, investors, suppliers and banks following the market.

The more developed the market is, the more important the supervision is; The more effective the regulation is, the more developed the market is. Over the past decade or so, real estate and regulation have gone hand in hand, with price rises and falls regulated as well. Now, we need to think about the purpose and effect of regulation. At present, only free liquidity input can resolve the deteriorating uncompleted residential flats crisis, reverse the momentum of collective forced loan suspension, and avoid the risk of uncompleted residential flats spilling over to commercial banks.

Regulation should serve the market, with the goal of reducing market transaction costs and maintaining market transaction fairness. Effective supervision can promote the normalization of real estate, maintain policy stability, reduce information costs, remove the policy of interfering with prices and supply and demand, let the free interest rate price determine the credit and bond financing of real estate enterprises, let the property market price promote the recovery of real estate demand and supply, and let the market repair the credit on the verge of collapse by itself. In short, the liquidation of the liquidation, the bankruptcy of the bankruptcy, the recovery of the recovery, the prosperity of the prosperity. It’s just that this “should” is not up to you and me the final say, nor any individual the final say, but the price the final say.

When interest rates and real estate prices are not agile, then the collective forced loan suspension trend is a late signal. Kolnai, a Hungarian economist who has long studied economic transition, once proposed that the decentralization mechanism of price is a better allocation method. He found that when the price was flat, he could not send the signal of shortage and risk in time. In extreme cases, the economic management department can only know that the shortage and risk have reached a considerable level through accidents such as the collapse of a section of road in disrepair.

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