The Relationship between Mortgage Credit and Property Prices: The Chinese Case

Abstract

Over the past decade, both the mortgage market and real estate sector have experienced a dramatic growth. The current financial crisis, which started in 2008 and significantly affecting the whole banking industry, has been attributed largely to the excessive growth of the mortgage and property markets. It started with the US subprime mortgage meltdown, but other countries (principally Ireland and Spain) experienced similar problems. The rapid growth of real estate prices and mortgage loans was extensively documented across many countries. (Wolswijk, 2006; Miles and Pillonca, 2008). In an international context, bank lending and property prices have a strong correlation . This stylized fact is supported by abundant cross-country evidence (Egert and Mihaljek, 2007; Lacoviello and Minetti, 2008; Goodhart and Hofmann, 2008; Davis and Zhu, 2010), as well as the indications from individual countries such as the USA (Capozza et al., 2002), Spain (Gimeno and Martinez-Carrascal, 2006; Carbo-Valverde and Francisco Rodriguez, 2010) and Ireland (Fitzpatrick and McQuinn, 2007). China has also witnessed rapid growth in the real estate industry. The percentage of real estate investment to GDP rose sharply, from 5 per cent in 1999 to 12 per cent in 2010 (see Figure 2.1). Meanwhile we also document the soaring property prices and the mortgage credit boom in the domestic market. At the same time, China experienced a substantial reform in both the banking and the mortgage financing systems.KeywordsReal EstateMonetary PolicyHouse PriceCommercial BankMortgage LoanThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.