Estimating the Leverage Condition of China’s Urban Households: Evidence from the Housing Sector

38 Pages Posted: 22 Jun 2020

See all articles by Hao Li

Hao Li

Tsinghua University - Hang Lung Center for Real Estate

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Mandi Xu

Tsinghua University - Hang Lung Center for Real Estate

Date Written: May 29, 2020

Abstract

The large and increasing debt in China has attracted global concern, but there is currently little quantitative information available on the leverage condition of China’s housing sector. In this study, we suggest the current loan-to-value (LTV) ratio of housing as the key indicator of households’ leverage condition and develop a method to estimate the city-level ratio wholly based on macro-level statistics. The results from 40 major cities suggest that, on average, the current LTV ratio was 57.3% at the end of 2017 in the most vulnerable scenario, and only 18.4% if we adopt the actual scenario. This finding suggests that in general, the leverage of China’s urban household sector is still in the relatively safe range. However, a few cities, such as Wenzhou, witnessed a high current LTV ratio of over 100% due to a housing market crash. Based on manually collected city-level delinquency data, we also provide empirical evidence that our current LTV indicator can at least partially explain the change in housing mortgage loan delinquency rates and can thus serve as an important indicator of systemic financial risks associated with the household sector.

Keywords: leverage, household, housing, China

JEL Classification: R20, R31, R63

Suggested Citation

Li, Hao and Wu, Jing and Xu, Mandi, Estimating the Leverage Condition of China’s Urban Households: Evidence from the Housing Sector (May 29, 2020). Available at SSRN: https://ssrn.com/abstract=3613442 or http://dx.doi.org/10.2139/ssrn.3613442

Hao Li

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

Jing Wu (Contact Author)

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Mandi Xu

Tsinghua University - Hang Lung Center for Real Estate ( email )

Beijing, 100084
China

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