Chinese Banks Roll out ‘100 Year Loans,’ ‘Heart-to-Heart Loans,’ to Relieve Housing Price Pressure

Expert says it won't be effective for the Communist government to manipulate real estate market prices to spur economic growth

A sales person introduces properties to a potential buyer at the 2010 Beijing Spring Real Estate Trade Fair on April 10, 2010 in Beijing, China. Feng Li/Getty Images

News Analysis

Banks in many places in China have reportedly introduced“heart-to-heart loans” that encourage unmarried couples to apply for home loans before they are married; and “centenary loans” that allow children to inherit their parents’ loan and extend the repayment period to 100 years. Experts believe that such relaxation of loan repayment time limits and borrower conditions could be intended to relieve the pressure of high housing prices that has undermined the country’s real estate market.

China’s Agricultural Bank launched on Feb. 22 “heart-to-heart loans” for unmarried couples living in Xiong’an new area, Baoding city, central Hebei Province. It allows for one or both of the parties to apply for a home loan in cases where they are joint owners, and that even if one party applies for the loan alone, both people are considered to be co-repayers, as reported by Chinese portal site Sina.

The move is somewhat like the Chinese banks’ attempts to ease the dual pressures of sluggish property sales and early repayment by borrowers, and has been seen elsewhere in other similar practices.

On Feb. 15, Guangxi Province’s Nanning C&D Real Estate announced a “centenary loans” (100 year loans) project, which is cooperating with some banks in Nanning, stretching home buyers’ loan term up to 100 years, that is, a mortgage repayment obligation that spans the parents and children of two generations.

The so-called centenary loan means, for example, a bank raises the maximum loan age for a homebuyer from 65 to 70, and then the homebuyer’s children take out a loan for the property for another 30 years, which adds up to a loan term of 100 years.

Some banks in Beijing, Shanghai, Guangzhou, Sichuan Province’s Chengdu, and Zhejiang Province’s Ningbo and Wuxi also changed the ceiling of loans, with Chengdu banks’ stretching loan terms to 90 years, and part of Beijing’s banks promising a 95-year-long loan term with the children guaranteeing repayment.

These loans include children as co-borrowers to ensure that house repayment can be made within an expanded time, considering that Chinese average life expectancy is about 77.93 years, according to data released by The National Health Commission in July 2022.

A general view of buildings under construction near the People's Bank of China office building on Sept. 29, 2007 in Chongqing, China. China Photos/Getty Images

Lifetime Mortgage Repayment

“Unlike the Western credit bankruptcy protection system, home mortgages in China are obligated to be repaid for life,” China expert Shi Shan told Epoch Times on Feb. 25.

Either “centenary loans” or “heart-to-heart loans” is just aiming to add multiple borrowers who are children, parents, or other eligible natural persons, said Dong Ximiao, a researcher at the Institute of Finance of Fudan University, Sina reported on Feb.23.

“It is actually a sort of ‘relay loan’ in the broad sense that one person’s income is not sufficient, and another person provides income to support the loan repay,” said Zheng Dayuan, a senior mortgage expert in Guangzhou.

Relay loans, as the name implies, are used when the borrower’s loan age or ability to repay is limited, the borrower’s relatives (parents, children, and their spouses) and even unmarried partners would take on the responsibility as co-borrowers or guarantors until the entire repayment is completed. Relay loans may circumvent the loopholes of purchase and loan restriction policies, so they have a “gray” area, according to a report from portal site NetEase on Feb.16.

Shi believes the relay loans are a “bone-squeezing” financial product that drains borrowers’ income, “it seems to reduce the burden of the borrower in [the] short term, but it puts them into over-indebtedness beyond actual solvency [in the long run].”

Moreover, it binds children’s credit demands in advance, extending the next generation’s future debt, he added.

The key reason for Chinese banks to propose various relay loans, in Shi’s view, is because of overpriced houses and the inability of residents to afford a home.

So why don’t real estate companies sell homes at bargain prices to reduce inventory, return capital, and benefit residents?

State-Manipulated Housing Prices

On Feb. 17, property developer Xincheng Group reportedly sold more than 70 suites of houses in Jinyue Garden, located in Shenzhen’s Longgang district, on the first promotion day. The slogan “With a down payment of only 300,000 yuan (about $43,000), the developer allows 600,000 yuan (about $86,000) free non-repayment” set off a home buying boom.

Such a preferential promotion tactic comes when Xincheng Group’s sales met with headwinds due to “multiple impacts of the market, the industry, and the epidemic [COVID]” for the past year. In Jinyue Garden’s Phase I, only half of the 522 units were sold in one year, while only 17 of the 490 Phase II units were sold in six months, as stated by the company on Feb. 19.

However, one day later, the Shenzhen municipal housing bureau called an emergency halt to Xincheng Group’s promotion activity and sealed some of the properties, claiming that the sales activity was suspected of “disrupting the market.”

A staff of the Longgang district housing bureau told Chinese media on Feb. 20 that the 20 percent down payment is tantamount to an unauthorized price reduction, which is explicitly prohibited by the authorities.

According to the publicity of Xincheng Group, if the price of a property worth 3 million yuan ($430,000) is cut by 600,000 yuan ($86,000), it is equivalent to a 20 percent discount.

Along with Shenzhen, Guilin, Kunming, Zhuzhou, Yueyang, Shenyang, Tangshan, and Zhangjiakou were among 21 cities across China in which the authorities banned or limited a reduction in housing prices. Some of these cities directly issued administrative orders, while others intimidated enterprises by not granting relevant governmental approval.

A large city developed by a Chinese company is seen under construction in Sihanoukville, Cambodia on Feb. 16, 2020. Paula Bronstein/Getty Images

Land Value and Real Estate-Related Tax

An article published on Feb.23 on NetEase challenged the reasons for the Communist government’s reluctance to lower housing prices even though excessively high housing price scare people away from buying homes.

If the housing price falls, then the land price will fall with it, and subsequently, the land mortgage companies will be insolvent and may default at any time. Once those companies default, banks’ bad debts will swell dramatically, and financial products will be seriously depreciated in value, “all these problems will lead local governments into a serious financial crisis,” the article said.

Thus, a flurry of policies by the authorities against the real estate sector, both the crackdown in 2021 and the reversed strengthening of the property market, are merely for the concerns of securing the delivery of properties, stabilizing soaring house prices, and preserving land values, according to the article author’s opinion.

To boost the property industry, the authorities have reopened the possibility of real estate companies going to the public to raise capital, which was stopped during a crackdown on the sector in 2021, as well as other transfusion measures.

Shi held the view that if housing prices fall, the real estate tax that the Chinese Communist Party (CCP) wanted to implement will not be as effective, and other taxes based on property valuation, such as estate duty, will also bear the impact, “so the CCP will hold on to the rip-off housing price while digesting the housing inventory ploddingly,” he said.

However, how effective is the use of high prices to reduce house inventory?

Currency Stagnates at Banks, Consumption Weakens

The authorities are striving to lengthen the time of de-stocking in the hope that the properties in reserve will be sold at consistently high prices, even if it takes more time, said U.S.-based China expert Ji Da, citing that the real estate industry has been tied to the Chinese economy, a somewhat lifeblood for the CCP.

Ji told The Epoch Times on Feb.25. that the high-priced de-stocking model is predicated on sustained economic growth that can constantly generate more new middle class people to support the real estate inventory.

However, China’s real estate has been going downhill over the years.

Data by China Index Academy showed that, in January, the total sales of the top 100 Chinese real estate enterprises amounted to 422.33 billion yuan (about $61.475 billion), down 31.7 percent year-on-year and 51.6 percent from last December, or a shrinkage of 8.6 percent compared to last January’s decline. Among them, enterprises with sales exceeding 10 billion yuan were reduced to 13, from 15 last January; enterprises with sales exceeding 5 billion yuan were reduced to 9, 13 fewer year-on-year.

A staff member counts money at Matou Town Rural Credit Cooperatives on June 20, 2011 in Linyi, Shandong Province of China. VCG/VCG via Getty Images

Residential loans amounted to 257.2 billion yuan (about $37.44 billion) in January, with short-term loans being 34.1 billion yuan (about $4.96 billion), and medium- and long-term loans being 232.1 billion yuan (about $32.47 billion), down by 66.5 billion yuan (about $9.68 billion) and 519.3 billion yuan (about $75.15 billion) respectively from the same period last year.

A sharp drop in housing sales and a sharp decline in the growth rate of medium- and long-term loans to residents partly reflect that the decline in real estate continued, and the relative weakness of both consumption and house purchase willingness.

The Chinese real estate market is seemingly taking a negative attitude toward a house price upswing, with more residents opting to bank their money and forego buying houses beyond their spending power due to their limited economic level.

China’s Central Bank recently released financial data saying that RMB deposits soared by 6.87 trillion yuan (about $1 trillion) in January, an increase of 3.05 trillion yuan (about $443.96 billion) year-on-year; household deposits peaked at 6.2 trillion yuan (about $902.47 billion), which is 790 billion yuan (about $114.99 billion) more than that of last January, a historical record high for that month.

The increase in residents’ savings has both advantages and disadvantages, said state-owned Securities Times in a Feb. 25 report, “However, only when the money circulates effectively in the market can the economy grow better, and the existence of banks will only cause a money squeeze,” it pointed out.

As to what the CCP has done on many matters, “it does not follow the rules of the market, but adopts an arrogance, a mindset of ‘man can defeat nature’ to artificially manipulate the market, which will definitely lead to the collapse of the real estate market,” Ji said.