On August 28, the Ministry of Housing and Urban-Rural Development, the People’s Bank of China, and the National Financial Regulatory Administration rolled out a package of measures: raise the pre-sale threshold to “principal capped at the main structure topping out,” prioritize existing homes, and tighten mortgages so that funds are only released after the completion and filing for record. Development loans for property developers will follow a main-bank model and operate under closed-loop management. Personal mortgage terms will be extended from 30 years to 40 years. After the news broke on Friday, real estate stocks surged collectively, but behind the excitement, what truly needs to be unpacked is that “40-year” line.
In the late 1980s, when the Tokyo asset bubble was at its wildest, the Bank of Japan once introduced a “100-year loan”—a repayment term of 100 years: grandfather borrows, father repays, and the grandson takes over to carry on. It was touted as “making it so that three generations can all afford to buy a home.” The slogan was almost word-for-word the same as what we hear today about “reducing monthly payments and smoothing the burden.” Then in 1991 the bubble burst. Tokyo property prices were cut in half, and then cut again. For those households that had taken out 100-year loans, the market value of their homes fell below the remaining principal, while the debt did not disappear across generations. Later, Japan’s Ministry of Land, Infrastructure, Transport and Tourism reported that the average age at which people fully repaid their mortgages had been pushed out to 73 years.