Hong Kong
CNN
—
The real estate market in China is so depressed that some banks are resorting to drastic measures, including allowing people to pay off their mortgages until they are 95 years old.
Some banks in the cities of Nanning, Hangzhou, Ningbo and Beijing have extended the upper age limit for mortgages to between 80 and 95, according to a number of state media. This means that people aged 70 can now take out loans with maturities between 10 and 25 years.
The Chinese real estate market is in the midst of a historic downturn. New home prices had fallen for 16 consecutive months through December. Sales for the country’s top 100 developers last year were only 60% of 2021 levels.
Analysts say the new age limits, which are not yet official national policy, are aimed at breathing life into the country’s moribund real estate market while taking into account China’s rapidly aging population, said real estate analyst Yan Yuejin. at E-House China Holdings, a real estate services company, in a recent research note.
“Essentially, it’s a policy tool to stimulate demand for housing because it can ease the burden of paying debt and encourage home buying,” he added.
The new mortgage conditions are like a “bridging loan”. If the elderly borrower is unable to repay, his children must sue the mortgage, he said.
Last month, China announced that its population had shrunk in 2022 for the first time in more than 60 years, another step in the country’s deepening demographic crisis with significant implications for its slowing economy. The number of people aged 60 or over rose to 280 million at the end of last year, or 19.8% of the population.
The age of the mortgage borrower plus the term of the mortgage should generally not exceed 70 years, according to previous rules published by the banking regulator. The average life expectancy in China is around 78 years.
The China Banking and Insurance Regulatory Commission has not publicly commented on the new terms.
But bank branches across the country set their own terms for these multigenerational loans.
According to the Beijing News, a branch of the city’s Bank of Communications said borrowers aged 70 can take out home loans with terms of 25 years, which means the upper age limit for its mortgages was increased to 95 years.
But there are also preconditions: the mortgage must be guaranteed by the borrower’s children and their combined monthly income must be at least twice the monthly mortgage payment.
Separately, a branch of Citic Bank has extended the upper age limit of its mortgage loans to 80, the newspaper said, citing a bank customer manager.
Calls to Beijing branches of Citic Bank and Bank of Communications went unanswered.
Hong Hao, chief economist at Grow Investment Group, said it was a “drastic” measure and “could be a marketing gimmick to trick older people into paying [mortgages] for the younger generation. »
E-House’s Yan said the main beneficiaries of the move may not be the elderly, but middle-aged borrowers between 40 and 59 years old. Under the extended payment age, these people could get a 30-year mortgage – the maximum term allowed in China.
Compared to the previous conditions, this means that these borrowers could pay less each month.
“It’s obviously a way to ease the burden of paying the debt,” Hong said.
According to E-House calculations, if a bank extends the upper age limit to 80, borrowers between the ages of 40 and 59 can get an additional 10 years on their mortgage. Assuming their mortgage is one million yuan ($145,416), their monthly payment can be reduced by 1,281 yuan ($186), or 21%.
Chinese households have become more reluctant to buy new homes over the past year as the now-defunct Covid curbs, falling house prices and rising unemployment have discouraged potential buyers. Protests that erupted in dozens of cities last summer were staged by people refusing to pay mortgages on unfinished homes, dealing another blow to market sentiment.
The authorities have rolled out a series of stimulus measures to try to revive the housing market, including several cuts in lending rates and measures to ease the liquidity crisis for developers – so that they can resume construction at the point death and deliver pre-sold homes to buyers as quickly as possible.
Besides Beijing, some banks in Nanning, the provincial capital of Guangxi province, have raised the upper age limit for mortgages to 80, according to the city’s official Nanguo Zaobao newspaper.
In the eastern cities of Ningbo and Hangzhou, several local lenders are announcing age limits of 75 or 80, a relaxation from previous rules, according to reports from the government-owned Ningbo Daily and Hangzhou Daily newspapers.
“If the applicant is too old to meet the loan requirement, they can have their children as a guarantor,” one lender said.
But Wang Yuchen, a real estate lawyer at law firm Beijing Jinsu, warned that such mortgages were “risky”.
It’s understandable that many cities are trying to revive their housing markets by reducing the monthly debt payment and enlisting more seniors into the pool of home buyers, he said in a written commentary on his WeChat account.
“But the elderly have a relatively low repayment capacity. On the one hand, it could affect their quality of life in old age, as they continue to carry the mountain of mortgage debt and work for the bank until the last moment of their lives,” he said. . “On the other hand, the associated risks may be transferred to their children, increasing their financial pressure.”
“For some homebuyers, choosing this way of buying a home is likely due to their lack of funds. But it’s risky to do that right now,” he said, adding that the real estate market is in a structural recession and the government is still trying to curb speculation.
