Chinese home buyers warned against using business loans to fund purchases

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BEIJING (Reuters) – Home buyers in Beijing, the Chinese capital, have been warned not to be tempted by loan brokers to illegally use commercial loans at lower interest rates to finance their purchases, a reported Beijing Business Today, supported by the state.

Many loan brokers have promoted illegal “loan for loan” arrangements under which homebuyers become “entrepreneurs” to qualify for business loans after shares in “businesses” have been transferred to them, reported the newspaper Monday evening.

Interest rates on business loans are around 4.0%, according to Beijing Business Today. While mortgage rates vary from 5.0% to 5.5%.

In March last year, financial regulators banned the illegal use of business loans in the housing market, fearing that real demand for credit could be crowded out by illegal home loans.

But such illegal schemes have persisted, posing an additional risk of exposing homebuyers to the possibility of not being able to repay the commercial loan, which typically has much shorter maturities, when called upon. .

An unsecured business loan can have a maturity of one to three years compared to a 10 or 30 year mortgage.

“If the buyer fails to repay the loan within the specified time, the bank will take action such as legal action and an auction of the collateral,” the newspaper said, citing officials from some banks.

If such business loans flowed into the real estate market, it would also lead to increased leverage for residents, fueling a hot real estate market, the newspaper warned.

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