China’s mainland sees a gradual decline in market demand for housing loans, prompting banks to resort to various tactics to attract customers. In Shanghai, some homebuyers have reported receiving a 5-gram gold bar as a gift for housing loans exceeding 1 million Chinese yuan. Economic observers point out that this could potentially lead to a financial crisis driven by housing loans. Recent significant drops in deposit and loan interest rates have led to concerns that ordinary people are bearing the brunt of these changes.
According to a report by the mainland media outlet “Daily Economic News” on the 26th, the practice of banks in China providing “rebates” to loan customers (where banks pay a certain commission to intermediaries or developers based on the loan amount) has long been a gray area in the financial industry.
The rebate practice was once restricted but, under performance pressures, some banks have resumed offering these incentives to attract customers. A senior real estate professional in China noted that these “cash rebates” on bank housing loans have always existed, typically ranging from 5% to 1%.
A loan manager at a commercial bank branch in Shenzhen revealed that the rebates are tiered, with the highest tier at 6%. The manager explained that as the real estate market weakens, the rebate levels offered by banks increase, but these incentives disappear when the market is strong.
A mortgage intermediary in Chengdu mentioned that by processing loans through a designated bank, clients can receive cash rebates of up to 0.8%, meaning a loan of 1 million Chinese yuan could yield an 8,000 yuan cash rebate.
One Shanghai homebuyer shared her experience of obtaining a mortgage for a second-hand property in June. She was given the choice of a gold bar or other gifts as part of the loan process. Although she did not calculate the exact rebate amount she received, she mentioned that for a loan exceeding 1 million yuan, the bank gifted her a 5-gram gold bar. However, she was informed by bank staff that cash rebates were not offered directly.
Numerous industry insiders have expressed concerns that in the face of performance assessments, loan issuance pressures, and shrinking mortgage demands, rebates may be necessary but could spark unhealthy competition.
Assistant Research Fellow Wang Xiaowen from the Institute of Communist Party Military and Operational Concepts at the Taiwan Institute for National Defense and Security Studies told Epoch Times that China’s banking sector resorting to tactics like “giving gold bars for housing loans” indicates the dire state of the real estate market. Banks are forced to resort to such tactics to attract customers to take out loans for property purchases.
“In the short term, banks may see an increase in housing loan performance. However, in the long run, when customers cannot afford the loan interest, at most, the bank can seize the property due to mortgage default, while the gold bars remain in the hands of the client, potentially yielding more value with rising gold prices. This situation could lead to a financial crisis driven by housing loans,” Wang stated.
Regarding the issue of unhealthy competition triggered by bank rebates, mainland capital market expert Xu Zhen told Epoch Times that a series of “improper operations” by the Chinese Communist Party post-pandemic has led to sustained economic decline, escalating unemployment rates, and a loss of confidence among the public about the future, resulting in increased savings and reduced spending. These issues pose a threat to the economic security of the Chinese Communist Party.
Xu analyzed that based on official data, household deposits increased from 59.8 trillion yuan in 2016 to 137 trillion yuan in 2023. With the rise in residents’ savings, banks are seeking more investment channels and projects. Housing loans remain a lucrative opportunity for banks. Xu highlighted that rebates and gold bar incentives are simply redistributing benefits while ensuring banks do not operate at a loss. These incentives primarily serve as a form of remuneration for intermediaries or loan officers, having minimal impact on the banks’ overall performance.
Furthermore, to forestall the outbreak of an economic crisis, the Chinese authorities have been lowering net interest margins at commercial banks and reducing deposit interest rates for the public to stimulate residential property purchases and consumption, albeit at the expense of bank profits and public interest.
Official data from the People’s Bank of China for the first half of 2023 revealed that the net interest margin for commercial banks stood at 1.98%, marking a 7-point decrease compared to the same period in 2022. By the fourth quarter of 2023, the net interest margin had further declined to 1.69%, down 29 points from the first half of 2023, reaching a historical low of 1.54% in the first quarter of 2024, a 15-point decrease from the fourth quarter of 2023.
In a move to stimulate the market, the People’s Bank of China lowered loan rates twice within three days from July 22 to 25. On July 22, the new Loan Prime Rate (LPR) witnessed its second drop of the year, with the 1-year LPR standing at 3.35% and the 5-year LPR at 3.85%, each dropping by 10 basis points from the previous period. Following suit, banks in Beijing, Shanghai, Guangzhou, and other cities swiftly adjusted their rates, with the minimum interest rates for newly issued first-home mortgages in cities like Nanjing dropping below 3%, marking a historical low.
Official media reports suggest that the decreasing gap between mortgage rates and rental returns could alleviate the wait-and-see sentiment among property buyers. However, Xu noted that recent announcements of interest rate reductions by major banks and the shift to lower deposit rates to below 2% signify a significant policy shift that ultimately harms the public.
“In terms of policy enactment, the interests of ordinary people have been infringed upon, making them the biggest victims!” Xu asserted.