Chinese regulators are drawing up plans to bar non-banklenders including online peer to peer (P2P) networks from offering loans for property purchases, a Bloomberg report reveals.
In July, online lenders were banned from handing out new loans for share purchases amid the country’s summer stock rout that wiped out $5 trillion.
Shanghai property prices are driving more Chinese borrowers online
According to Shanghai-based research consultancy Ying Can Group CEO Xu Hongwei, nobody knows what the government is going to do next as the trend for the P2P business is not predictable.
“The government will definitely further tighten scrutiny of this business as they won’t allow a system that is out of control,” Bloomberg quotes Xu as saying.
Of the more than 2,500 P2P platforms that were operating normally, about a quarter were active in home lending, according to figures provided by the research firm. Home loans accounted for 23 per cent of the P2P industry’s 500 billion yuan of outstanding loans, it says.
Meanwhile Bloomberg says Ying Can Group data shows online lending for property in China grew more than six times faster than loans extended through its banks last year.
According to Ying Can research quoted by Bloomberg, Chinese borrowers are using online platforms as part of the country's less-regulated financing market to take advantage of the nation’s real estate boom.
The research shows loans handled by online platforms climbed 163 percent to 115.5 billion yuan ($US 18 billion) in 2015.
That rate is faster than the 21 per cent increase in outstanding mortgages held by the country’s banks during the same period, central bank data shows.
The surge reveals the way buyers appear to be seeking quick financing to avoid missing out on the boom that drove prices in cities from Shenzhen to Shanghai up as much as 50 per cent in the past year.
The Ying Can report shows individuals have been increasingly borrowing for home purchases over the past two years using online platforms, which have less-stringent requirements.
“Borrowing money from banks is indeed very difficult in China, even if you have a property yourself, because (banks) are carefully managing their risks,” Xu confirms.
“That leaves room for the development of peer-to-peer lending.”
However Bloomberg adds the amount of home lending by peer to peer (online) lenders is still less than 1 per cent of the 21 trillion yuan of outstanding bank mortgages.
"Further growth will depend on whether the government acts to rein in the property boom and whether regulators tighten their control over the online industry, as they seek to curb risks to the financial system from excessive credit," Bloomberg reports.
The sector had more than 1,400 “problematic platforms,” Ying Can said in a report last month.