The real estate market in China is so depressed that some banks are resorting to drastic measures, including allowing people to pay off mortgages until they are 95 years old.
Some banks in the cities of Nanning, Hangzhou, Ningbo and Beijing have extended the upper age limit for home loans to between 80 and 95, according to a number of state media reports. This means that people aged 70 can now take out loans with maturities of between 10 and 25 years.
China’s real estate market is in the midst of a historic downturn. New house prices had fallen for 16 months in a row through December. Sales by the nation’s top 100 developers last year were just 60% of 2021 levels.
Analysts say the new age limits, which are not yet official national policy, aim to breathe life into the country’s moribund property market while taking into account China’s rapidly aging population, said Yan Yuejin, a property analyst at E-House China Holdings. a real estate services firm, in a recent research note.
“Basically, it is a policy tool to stimulate housing demand, as it can ease the debt service burden and encourage home buying,” he added.
The new mortgage terms are like a “relay loan.” If the older borrower is unable to make repayments, his or her children must continue with the mortgage, he said.
Last month, China reported that its population shrank in 2022 for the first time in more than 60 years, a new milestone in the country’s deepening demographic crisis with significant implications for its slowing economy. The number of people over 60 increased to 280 million at the end of last year, or 19.8% of the population.
The borrower’s age plus the length of the mortgage should not normally exceed 70 years, according to previous rules published by the Norwegian Banking Authority. China’s average life expectancy is around 78.
The China Banking and Insurance Regulatory Commission has not publicly commented on the new terms.
But bank branches across the country set their own conditions for these multi-generational loans.
According to Beijing News, a branch of the Bank of Communications in the city said borrowers as old as 70 can take out mortgages with a duration of 25 years, meaning the upper age limit for mortgages has been raised to 95.
But there are also prerequisites: The mortgage must be guaranteed by the borrower’s children, and their combined monthly income must be at least twice the monthly mortgage payment.
Separately, a branch of Citic Bank has extended the upper age limit on its home loans to 80 years, the newspaper said, citing a bank customer manager.
Calls to the Beijing branches of Citic Bank and Bank of Communications were not answered.
Hong Hao, chief economist at Grow Investment Group, said this was a “drastic” measure and “may be a marketing gimmick to attract the elderly to pay (mortgage) for the younger generation.”
Yan of E-House said the main beneficiary of the move may not be the elderly, but middle-aged borrowers between 40 and 59. Under the extended lock-in age, these people can get a mortgage for 30 years – the maximum length allowed in China.
Compared to previous terms, this means that borrowers can pay less each month.
“It’s obviously a way to ease the debt service burden,” Hong said.
If a bank extends the upper age limit to 80 years, according to E-House calculations, borrowers aged 40 to 59 could get an additional 10 years on their mortgage. Assuming their mortgage is one million yuan ($145,416), their monthly payment can be reduced by 1,281 yuan ($186), or 21%.
Chinese households have grown reluctant to buy new homes in the past year, as the now closed Covid curbs, falling house prices and rising unemployment have discouraged potential buyers. Last summer, protests that erupted in dozens of cities were staged by people refusing to pay mortgages on unfinished homes, dealing a further blow to market sentiment.
The authorities have launched a series of stimulus measures to try to revive the housing market, including several cuts in lending rates and measures to ease the liquidity crunch for developers – allowing them to resume halted construction and deliver pre-sold homes to buyers as quickly as possible.
Apart from Beijing, some banks in Nanning, the provincial capital of Guangxi province, have raised the upper age limit for home loans to 80, according to the city’s official newspaper Nanguo Zaobao.
In the eastern cities of Ningbo and Hangzhou, several local lenders are announcing age limits of 75 or 80, a relaxation of previous rules, according to reports in the state-run Ningbo Daily and Hangzhou Daily.
“If the applicant is too old to meet the loan requirement, they can have their children as guarantors,” said a lender.
But Wang Yuchen, a real estate lawyer at the Beijing Jinsu Law Firm, warned that such mortgages were “fraught with risk.”
It is understandable that many cities are trying to revive their housing markets by reducing the monthly debt payment and enlisting more elderly people in the pool of home buyers, he said in a written comment on his WeChat account.
“But the elderly have a relatively poor ability to repay. On the one hand, it could affect their quality of life in old age, as they continue to carry the mountain of mortgage debt and work for the bank until the last moment of their lives, he said. “On the other hand, the associated risks can be passed on to their children, increasing their financial pressure.”
“For some home buyers, it is probably due to a lack of funds to choose this way of buying a house. But it is risky to do so at this time,” he said, adding that the real estate market is in a structural downturn and the government is still working to curb speculation.