China is in the middle of a new home buying boom

Another buying spree.
Another buying spree.
Image: Reuters/Aly Song
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Chinese banks issued 949 billion yuan ($142 billion) in new yuan loans in August—and more than half of them were funneled into home buyers’ hands, amid a property market comeback.

The August figure, released today (Sept. 14) (link in Chinese) by the People’s Bank of China, is more than double the July figure, and beats analysts’ forecast by 20%.

56% of new bank loans issued in August went to households as “mid & long-term loans,” which are usually interpreted by China analysts to mean mortgage loans. That’s up 85% from a year earlier. In July, overall mortgage loans grew 8% from the month before. Those new loans represented over 100% of the total, because loan growth was offset by borrowers paying previous loans back.

Chinese banks are fueling the most recent home buying frenzy in first-tier cities. On Tuesday (Sept. 13), the National Bureau of Statistics said that home sale revenue and overall real estate area sold went up 39% and 26%, respectively (link in Chinese) in the January to August period, compared to a year earlier. In Shanghai, a rumor about stricter government controls over home buying pushed married couples to fake divorces, in order to qualify for a lower downpayment and interest rate when purchasing a second home.

Meanwhile, China’s M2, the widest measure of money supply—which includes cash in circulation and deposits—rose 11% in August year-over-year, also beating market expectations. But money is not going to where it is needed most, to companies investing in growth: Newly extended loans to non-financial enterprises in August was at 121 billion yuan, down 72% from a year earlier.

That’s because China’s private firms are not confident about the future of the country’s economy. Growth in fixed-asset investment, an indicator for capital spending in the long term, dropped in August and has been largely driven only by state-owned companies all year.