The Real Estate Bloggers

China Banks Stop Lending For Real Estate For The Rest Of The Year

Posted: 15 Nov 2010 06:02 AM PST

Moneyhousemedium We complain about the inefficiencies of our banking industry and it’s issues with lending to homeowners and businesses. Just remember, the alternative can be much worse.

Take China, with it’s command and control Communist government, as an example. When their fund for real estate lending ran out they told the 4 leading banks to stop lending. Just like that the real estate industry shuts down for a couple of months.

Of course, are we really that far away? With Freddie Mac and Fannie Mae under government control we are not that far away. Could you imagine on November 15^th a government functionary announcing that Freddie and Fannie are done buying loans for the year?

That is why the messy, annoying, and down right frustrating capitalist system is better. It allows the allocation of capital without governments approval. Political decisions are taken out of the equation and practical decisions are rewarded.

Now is it perfect? No. Bubble will happen, credit crunches will occur. But in the long term we are all better off if capital flows freely. If you do not believe me, just ask the developers in China today.

The top four state-owned lenders suspended credit to developers at the end of October after exhausting the industry’s annual loan quota, China Real Estate Business said, citing unnamed bank employees. It said the government limit for total real estate lending next year might be reduced by up to 20 percent.

Chinese regulators are trying to cool surging credit, worried that runaway lending might be fueling a dangerous boom and bust in real estate. Beijing hiked interest rates last month and ordered banks last week to increase reserves in a move to reduce the pool of money for lending as it tries to restore normal economic conditions.

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China Banks Stop Lending For Real Estate For The Rest Of The Year