BEIJING, May 7 (Xinhua) -- Financial risks on China’s real estate market can not be ignored, said Kuang Weida, a professor at the School of Business at Renmin University of China on a seminar held in university.
At present, there are many kinds of financial risks that China may encountered, such as real estate risk, local debt, and government debt risk. However, from the perspective of the possibility of risks occurrence and the influence of the crisis, real estate risk is the most prone to happen and has the most direct impact, Professor Kuang noted, adding that financial risks in real estate market will involve a lot of aspects of the society, especially the family sector.
Data shows that the proportion of mortgages in China`s household sector has been as high as more than 60 percent.
According to Kuang, local debt, government debt and real estate financial risks are entangled to form a cross-risk, accounting for a high proportion in local GDP and fiscal revenue, which will be the hidden risks.
The high leverage ratio of the companies is usually related to the real estate, and some land and houses are used as collateral for financing, the professor added, noting that the leverage ratio has been as high as 70 percent or 80 percent, and even exceeds 100 percent in several small and medium-sized companies.
The professor thus called the central government to take measures to prevent the systemic financial risks, especially control the financial risks in the real estate market.
Professor Kuang stressed that fluctuations in house prices will cause default risk on home loans. According to the option theory, if the house price is lower than the mortgage, the borrower will default. Besides, the loan characteristics, borrower characteristics, property characteristics, and regional characteristics also caused the default risk of mortgages. In addition to the above risks, there are also risks of early repayment, high default rate of second-hand housing in China.
He warned that the housing bubble also has a huge impact on the risk of mortgages. It is estimated that the housing prices have serious bubbles in some Chinese cities and are underestimated in some other cities. Therefore, different loans and regulatory measures should be taken according to the characteristics of different regions, he added.
According to Professor Kuang, China`s mortgage risk mainly lies in two aspects. One is the amount of mortgage loans make the banks bear the pressure of mortgage debt, and the other is the housing prices also have a downward trend at present.
Therefore, the professor suggested attaching great importance to the impact of the price fluctuations on the one hand, to prevent the mortgage risk caused by the housing price plummeting; and to strengthen the bank`s ability on other hand, to resist the risk of housing loans, and make sure the proportion of housing loans in the total bank loans does not exceed 25 percent. (Contributed by Zhao Danliang, Danliang67@xinhua.org, edited by Zhang Aifang, zhangaf@xinhua.org)
A single purchase
