"80,000 deposits can buy a small three-bedroom apartment"! Beware of the risk behind the "discounts on discounts" for down payments in many places
Li Ming from Jiaozhou, Shandong recently planned to buy a wedding house. Although he only had 80,000 yuan in savings, according to the latest local policies, it was enough for him to buy a small three-bedroom apartment with a total price of 1.06 million yuan.
In May, the People's Bank of China and the Financial Regulatory Bureau issued a document to adjust the down payment ratio for the first home to no less than 15%, and the second home to no less than 25%. According to the current policy of Jiaozhou City, home buyers can pay half of the down payment first, and the remaining half can be paid in the next 1 to 2 years, which means that the down payment ratio has been reduced to 7.5%.
The deferral of down payment is not an isolated case. The reporter of China Business News noted that since the beginning of this year, many regions across the country have made it clear that they will further reduce the down payment ratio. In addition to the "extreme discounts" endorsed by local governments, there have long been many types of low down payment operations in the market, such as down payment installments and developer subsidies, which circumvent the policy red line in a half-hidden way. According to the reporter's observation, before the government issued the document, developers and intermediaries in Huizhou, Dongguan, Shenzhen and other places had already reduced the down payment ratio to less than 15%.
Industry insiders believe that at present, there is a certain market demand to solve the pressure of down payment, and there is a certain space for innovation in the low down payment model, but it still needs to be analyzed based on specific circumstances. At the same time, we must be wary of the risks brought by various low down payment models that are mixed.
Recently, governments in many places have successively introduced "extreme preferential" policies to justify low down payments. In addition to Jiaozhou, Shandong, the reporter noticed that at the beginning of the year, Xingwen County, Yibin City, Sichuan Province, introduced a housing subsidy policy for industrial workers. If you have worked in the Xingwen County Air-Rail New District for six consecutive months, you can enjoy a down payment deferral when buying a house. The down payment deferral ratio shall not exceed 50%, the total amount shall not exceed 100,000 yuan, and the total time limit shall not exceed 2 years.
In fact, in many areas, agents and developers are more radical. After visiting several real estate projects in Guangdong, the reporter found that the low down payment models promoted by developers or agents can be essentially summarized into the following three categories.
The first type is that the developer reduces prices in disguise to promote sales or advances payments. The developer will deposit the down payment directly into the buyer's account through various channels, and the buyer will then transfer this amount to the developer's supervision account to pay the down payment. For example, a sales agent of a property in Daya Bay, Huizhou, told reporters that the current minimum down payment for a property with a total price of 900,000 yuan is 30,000 yuan, which is only 0.3% after conversion. The developer will deposit the remaining 1.2% of the down payment funds into the buyer's account.
This is similar to the recent preferential housing loan policies of some local governments. The account manager of the property told reporters that this method is mainly to covertly subsidize home buyers and prevent excessive promotion efforts from causing complaints from early owners.
The second type is to use the price difference between the registered price and the actual sales price to conduct high appraisal and high loan, thereby lowering the down payment threshold in disguise.
In early June, when the reporter consulted about a real estate project in Futian District, Shenzhen, the salesperson told the reporter that buyers only need to pay a 10% down payment, and a third party will deposit the corresponding funds for the 10% down payment into the buyer's account.
The salesperson took the example of an 82-square-meter apartment on sale. The total price of the apartment is currently about 7 million yuan, and the actual selling price after discount is 6.18 million yuan. However, the real estate company will sign the contract online based on 7 million yuan and apply for a bank loan. According to the ratio of 80%, the loan amount is about 5.6 million yuan, which is a disguised down payment of about 10%.
The third type of loan, which is more risky, is to provide down payment loans through third-party financial institutions. For example, in a loft apartment in a real estate project in South China, the salesperson will recommend a cooperative financial institution to the buyer and lend part of the funds to the institution for the down payment.
"Destocking is the top priority now, so it's not surprising that some projects offer zero down payment," a marketing person from a leading developer told reporters. The reason behind the rising momentum of low down payment marketing is the continued downturn in the property market, which has increased the pressure to sell properties.
Even with the new policy, sales data during the Dragon Boat Festival holiday were still flat. According to data from the China Index Academy, the average daily sales area of new homes in 30 representative cities during the Dragon Boat Festival holiday fell by 16% year-on-year.
Looking at the long term, according to the data from the National Bureau of Statistics, in 2023, the sales area of commercial housing was 1117.35 million square meters, a decrease of 8.5% over the previous year, of which the residential sales area decreased by 8.2%. The sales of commercial housing was 1166.22 billion yuan, a decrease of 6.5%, of which the residential sales decreased by 6.0%.
Amid the sluggish property market, developers are facing pressure to sell their properties. According to a report recently released by E-House Research Institute, the inventory scale of newly built commercial residential properties in 100 cities nationwide will be 500.2 million square meters in April 2024, a month-on-month increase of 0.2%. The inventory turnover cycle of newly built commercial residential properties in 100 cities nationwide, i.e. the inventory-to-sales ratio, is 26.5 months. Based on historical data and the engineering construction relationship of real estate "development-pre-sales", the reasonable value of the inventory-to-sales ratio is defined as 12-14 months. This shows that the current turnover cycle is obviously too high. Calculated at the reasonable value of 13 months, the pressure to sell has doubled.
At present, the sales speed is still relatively slow. Even in the "peak season" such as holidays, when the marketing discounts are "maximum", most customers still believe that there is still room for price reduction and are mainly waiting and watching. During the Dragon Boat Festival holiday, the subscription for many properties of the company in his city was still in single digits.
However, in his opinion, even the marketing method of focusing on low down payment is not very effective now. In the past year, housing prices have been reduced periodically at regular intervals. Real estate market customers are in a wait-and-see mood and are not as sensitive to low down payment as before.
Another real estate company insider told the reporter that some developers do not have a unified publicity caliber, but in actual operation, they can also reduce the down payment or postpone the payment. He told the reporter that when the real estate market is good, the developer's discounts usually have certain standards and need to go through strict cost accounting and approval processes. However, due to the recent pressure on sales, models such as "one house, one negotiation" have begun to appear, and there is still room for the "bottom price" to loosen. If customers have difficulty raising down payments, there will be some room for operation for sales considerations.
Anxiety has also spread to local governments. Take Jiaozhou City, Qingdao City, for example. Jiaozhou City is a county-level city under the jurisdiction of Shandong Province and is administered by Qingdao City. According to CRIC Qingdao statistics, in April this year, Jiaozhou supplied 253 units and sold 654 units, of which Yingchuang Banqiao Huafu sold 297 units. If the impact of this project is excluded, the market-based transaction volume has decreased by 53.8% year-on-year; in May, when the "old for new" policy was launched, Jiaozhou City had no new supply and a transaction area of 39,500 square meters, a year-on-year decrease of 79% and a month-on-month decrease of 50%.
"Although we cannot say that Jiaozhou's inventory reduction cycle is abnormally high when we look directly at it. But considering the increase in second-hand housing listings and the overall low sales in various places, I believe that the difficulty of the inventory reduction cycle is an important reason for forcing the introduction of some ultra-low down payment policies. This in turn also requires various places to further optimize and adjust their housing purchase policies." Yan Yuejin, research director of the E-House Research Institute, believes.
Is the low down payment model compliant? Most industry insiders believe that it is necessary to distinguish different situations.
A senior real estate professional told the reporter that if the rules for advance payment and deferred down payment are set properly, it will help to alleviate the pressure of down payment to a certain extent and encourage buyers to enter the market under the current loosening of real estate market policies. However, if it involves down payment installments or high appraisal and high loan operations, there is a greater risk of violation.
"From the perspective of commercial housing sales, some methods of zero down payment or low down payment are illegal." Wang Yuchen, director of Beijing Jinsu Law Firm, told the First Financial reporter that zero down payment or low down payment is often accompanied by illegal operations such as down payment loans, high appraisals and high loans, and this method itself is expressly prohibited.
Wang Yuchen further explained that as early as 2017, the Ministry of Housing and Urban-Rural Development, the People's Bank of China and the China Banking Regulatory Commission jointly deployed to regulate housing financing and strengthen anti-money laundering work, which clearly stipulated that real estate developers and real estate intermediaries are strictly prohibited from illegally providing down payment financing for housing purchases, and Internet financial institutions and microfinance companies are strictly prohibited from illegally providing "down payment loans" and other housing financing products or services, and real estate intermediaries, Internet financial institutions, and microfinance companies are strictly prohibited from illegally providing real estate off-site financing. From the perspective of bank loans, if there is really 0 down payment, it means that it does not meet the standards for bank loans and lending at all. To some extent, there may be illegal acts of defrauding bank loans.
Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Provincial Urban Planning Institute, holds a similar view. He told the First Financial reporter that the low down payment model breaks through the differentiated housing credit policy requirements for the minimum down payment ratio. Developers or financial institutions should not be encouraged to frequently break the lower limit in order to expand their business. In addition, if the low down payment involves cooperation between developers and financial institutions and "grafting" over-the-counter financial products, it is easy to mislead home buyers and increase their capital costs, which is also not in line with existing relevant regulations.
For home buyers, there is also a greater financial leverage risk under the low down payment model.
Li Yujia told the reporter of China Business News that buyers who are tempted by low down payments may misjudge the risk of monthly payments. If the buyer's subsequent employment and income are insufficient to support high monthly payments, it will not only affect the basic expenses of the family, but also damage bank loans, causing the non-performing loan rate of mortgage loans to rise. In fact, in recent years, house prices have not fallen sharply, there have been few defaults, and negative effects have not yet appeared. However, if the housing market continues to be sluggish, the negative effects may become more apparent.
"Objectively speaking, there are certain risks in paying a down payment that is too low, or in the form of deferred payment." Yan Yuejin believes that after paying the down payment, if one does not want to buy a house or is unable to pay the remaining down payment, there may be transaction risks.
The reporter noticed that the non-performing rate of housing loans has gradually increased in recent years. According to the PwC report, at the end of 2023, the scale of corporate real estate loans of 38 listed banks was about 6.64 trillion yuan, and the overall non-performing rate of corporate real estate loans was 4.43%, up 0.18 percentage points from the end of the previous year.
Against the backdrop of rising non-performing loan rates, how should the low down payment model in the real estate market control risks?
Yan Yuejin suggested that this model should not be rolled out on a large scale, but should be implemented for some homebuyers whose ability to pay will obviously improve within two years, including those who have second-hand houses or assets that can be liquidated, or those whose salary and other income have increased significantly. Under the premise of paying attention to risk control, the pilot and promotion should be carried out cautiously. If it is effective, it can also be used as a reference for other cities.
Li Yujia suggested that before applying for a loan, homebuyers should objectively evaluate their ability to support monthly payments based on employment, income, and family expenses, and should not blindly believe in the propaganda of developers or banks. The current market is still a buyer's market, and there is still an expectation that housing prices will fall overall. Homebuyers have a lot of room to choose from, and they don't necessarily need to rush to buy a home.
