House Evaluation Price Drops by Over 3 Million, Making it Difficult for Business Loan Borrowers to Renew Loans - Huxiu.com#
Omnivore#
This article reports on the difficulties faced by homebuyers in renewing their business loans in the context of a declining real estate market in Shenzhen.
• 💰 Homebuyers who used their houses as collateral for business loans are now facing a significant gap between the renewal amount and the initial loan amount due to the decrease in housing prices.
• 💼 Banks require customers to reduce the loan amount or transfer to banks with higher credit limits.
• 🏦 The conditions for renewing business loans are relatively lenient, providing a funding solution for credit loans.
Over the course of three years, the assessed value of a house has dropped from 6 million yuan to just over 2 million yuan.
Who would have thought that the melons planted by homebuyers during the frenzy of the Shenzhen real estate market three years ago would turn into bitter gourds?
Recently, there have been rumors in the market that many homebuyers who used their houses as collateral for business loans three years ago are now facing the expiration of their loans. However, due to the decline in housing prices, the latest assessed value of the houses has also decreased, resulting in a significant gap between the renewal amount and the initial loan amount. As a result, they are unable to renew their loans and face the risk of having to repay a large amount of debt at once or risk having their properties foreclosed.
During interviews, several banking professionals confirmed to reporters from "Everyday Economic News" that due to the continuous decline in housing prices, the current loan assessment value is approximately at the level of 2019. Banks generally require customers to reduce the loan amount for renewal or transfer to banks with higher credit limits.
However, some industry insiders have told reporters that the period of strict renewal and review for business loans was probably two years ago when the reference price was strictly enforced and spot-checked by various banks, leading to some loans being revoked. Now, due to the general decline in the market, the conditions for processing business loans have become more lenient, providing opportunities to increase the loan-to-value ratio and process credit loans.
Shenzhen real estate market, image from Everyday Economic News
I. Assessment value drops from 6 million to just over 2 million
The reporter noticed on a social media platform that some homebuyers used a duplex penthouse in Futian District as collateral for a business loan three years ago, and now that the loan is due at the end of the month, the housing prices have dropped, resulting in a decrease in the assessed value of the house. The renewal amount is significantly different from the initial loan amount. Recently, they have been trying various methods to remedy the situation, but so far, they have been unsuccessful in their attempts to find a solution with assessment agencies, financial intermediaries, and bank account managers.
In their comments, they mentioned that using a business loan to buy a house was actually a violation of regulations, and now they can only bear the consequences.
Huang, a staff member of a lending institution in Futian District, told the reporter that they have recently been handling loan renewals, but most of them are helping clients transfer their loans.
"Many clients are not able to renew their loans because the decline in housing prices is too significant. Most banks do not allow renewals and can only transfer the loans to other banks. If the normal decline in housing prices exceeds 30%, the loan amount will be reduced. Usually, clients ask us to find channels to increase the assessed value, thereby increasing the loan-to-value ratio."
Huang told the reporter that they recently handled a client's business, where two commercial properties were mortgaged together, and they obtained a loan of 6 million yuan from a certain bank three years ago. However, the loan-to-value ratio has been significantly reduced this year.
"They were only given a little over 2 million yuan, which is a huge difference. We helped them find a channel with a higher loan-to-value ratio, and just last week, they received approval for a loan of 5 million yuan."
During the volatile adjustment process of housing prices in Shenzhen, some people claimed to have chosen a conservative strategy.
Mr. Wang told the reporter that two years ago, due to the need for family funds, he mortgaged his house for a loan. At that time, the bank's assessed value was nearly 7 million yuan, and based on the existing loan, he borrowed over 2 million yuan. However, the assessment value of the house is now only around 4.8 million yuan.
"I have already repaid some of the funds, but even if I renew the loan, I can only borrow a few hundred thousand yuan." Mr. Wang said that there have been few good investment opportunities in recent years, so he plans to repay the entire loan before it expires.
II. "Renewing business loans is not a problem as long as there is a way"
However, in the market, there are only a few borrowers who can fully repay their loans, and more people need to find ways to transfer their loans or switch to credit loans.
A senior bank executive interviewed by reporters stated that in cases where the assessed value is lower than the original loan assessment value, they generally require customers to reduce the loan amount for renewal or transfer to banks with higher credit limits. This situation is currently very common, and most customers choose to reduce the loan amount for renewal, but some investment clients who are concerned about the credit limit may choose smaller banks.
A lending manager in Bao'an District told reporters that she handles over a dozen mortgage loan applications every month, and one of her clients had a loan of 3.8 million yuan before, but recently, they could only obtain a loan of 2.8 million yuan.
She also introduced to the reporter that there are now many low-interest products available. For example, some banks can offer an annual interest rate of 2.79%, with a monthly interest rate of 2.32 per thousand yuan borrowed. The monthly payment for a loan of 1 million yuan would be 2,320 yuan, and the repayment method is interest-only for the first 10 years. She explained that due to the decrease in the assessed value, banks can only retain customers by lowering the interest rate.
The reporter noticed that although the assessment value has been adjusted, compared to the strict review and dynamic supervision of business loans in the past two years, the current process for handling business loans has become more flexible. Some industry insiders told reporters that renewing business loans is now easier and less strict.
According to their observations, for example, a house that was originally priced at 8 million yuan but had a market price of 11 million yuan, many houses were mortgaged based on an assessment value of around 10 million yuan. Later, as housing prices declined, following the guidance price, the business loans were based on an assessment value of 8 million yuan. Now, based on the assessed value, the price can reach 80% or even 90%, and some banks from other regions can offer even higher loan-to-value ratios. Therefore, renewing business loans is not a problem as long as there is a way.
During the interviews, it was learned that many lending institutions have launched major activities at the end of the year, such as a 2.8% annual interest rate package. In the products promoted by some lending institutions, the loan-to-value ratio can reach 70% to 85% of the assessed value, with a maximum loan amount of 20 million yuan and an annual interest rate of approximately 2.8% to 2.9%. The repayment methods are also flexible, with interest-only payments for the first 10 years, and residents of Hong Kong and Macau can also apply. The more they borrow, the lower the interest rate.
The heavy pressure of renewing business loans has also provided a funding solution for credit loans, which were originally subject to strict review. Several intermediaries told reporters that now, with the significant decline in mortgage loan prices, credit loans for state-owned enterprises, large internet companies, and government employees can reach up to 10 million yuan without the need for collateral.
"In the second half of last year and this year, the main policy focus was on credit loans because housing prices have fallen too sharply." Huang told reporters that in terms of interest rates, the lowest starting rate for equal principal and interest repayment is only 1.8 per thousand, slightly higher for interest-only payments, starting at 2.6 per thousand. A single bank can provide a credit loan of up to 3 million yuan, depending on income and level, and the processing time is generally around one month.
III. Housing prices drop from 8 digits to 6 digits
Three years ago, the Shenzhen real estate market was booming, giving rise to a group of "mentors" who taught people how to buy houses. At that time, slogans such as "Everyone can buy a house until financial freedom" and "Turn 300,000 yuan into 2 million yuan in two years" were seen everywhere in the market.
For example, Deep House Theory, a team with a large number of members and investigated by seven departments in Shenzhen, was found to have engaged in activities that disrupted the order of the financial market, such as forging official documents from government agencies, providing false information to obtain loans, and evading financial monitoring through multiple transfers, splitting, and cash withdrawals. The total amount of problematic loans involved various categories, including mortgage loans, business loans, and consumer loans, amounting to 1.064 billion yuan, of which 380 million yuan were business loans.
Data from the LeYouJia Research Center shows that from 2021 to 2023, the average transaction price of second-hand houses in Shenzhen has dropped from 8 digits to 7 digits, and then to 6 digits, continuously decreasing.
In the fourth quarter of 2023, the average transaction price of second-hand houses in Shenzhen was 65,000 yuan per square meter, a 22% decrease compared to the historical high of 83,000 yuan per square meter in 2021 and a 12% decrease compared to 2022. The phenomenon of trading price for volume is evident, with an increase in the number of available properties. Under the temptation of low prices, customers' willingness to purchase has increased, accelerating the release of demand.
Among the top 50 areas for second-hand transactions in 2023, only Dongmen, Huaqiang South, and Futian Central District saw a slight increase of 1%, while Danzhutou, Science and Technology Park, and the Free Trade Zone remained stable. Most other areas experienced a decline, ranging from 5% to 20%. After more than two years of adjustment, prices have basically bottomed out and stabilized.
Wang Yuchen, the director and founding partner of Beijing Jinsu Law Firm, said in an interview with reporters:
Unlike mortgage loans, business loans require a reassessment of the property every few years. A decrease in the assessed value means that after this reassessment, the amount of loan that a homebuyer can apply for will be smaller. Therefore, in the process of borrowing new loans to repay old loans, homebuyers need to first make up for the shortfall of the old loans, which creates a significant funding gap and economic pressure.
"Many people, guided by intermediaries, use bridge loans or loans to repay loans to fill this gap. However, it should be noted that these two methods will incur new costs. If there are problems with the subsequent funds and they cannot be repaid in a timely manner, the debt will increase like a snowball." Wang Yuchen said.
Wang Yuchen believes that intermediaries or banks that engage in the operation of replacing mortgage loans with business loans, once discovered, will also face the risk of punishment and even criminal penalties. Homebuyers, developers, intermediaries, or banks should not try to take advantage of the situation when purchasing a house. In the entire chain, although homebuyers seem to benefit from reduced costs, they are actually exposed to many hidden risks and future risks. Other parties may seem to benefit, but they have violated laws and regulations and inadvertently increased risks.
Regarding the future trend of the Shenzhen real estate market, He Ling, the marketing director of LeYouJia, believes that after more than two years of adjustment, the current market prices have basically bottomed out and stabilized. First-time homebuyers and those looking to upgrade their homes are seizing the opportunity to make purchases. The market will see accelerated consumption of available properties after the Chinese New Year, making it a good time to make purchases and find bargains before the year-end.