Pawnshop Loans Gain Favor as Property Owners Look to Trade up

As Chinese banks tighten granting loans for citizens to buy newer properties, an increasing number of prospective buyers are turning to pawnshops to finance their plans.

Wang, a 40-year-old Beijinger, currently owns an apartment worth about 700,000 yuan (94,434 U.S. dollars) in the capital. His desire to move-up to a larger second-hand apartment worth about one million yuan ran into a snag when the owner demanded payment in full. Wang, however, only had slightly more than 600,000 yuan.


The dreams of millions of Chinese looking to buy better properties in the country's red-hot real estate market were dealt a blow in September with a circular jointly issued by China's central bank and the China Banking Regulatory Commission (CBRC).

The circular stated that for people who have already bought houses with a bank loan, for those who wish to trade-up the down payment must be 40 percent of the purchase price. In addition, the loan interest rate should not be lower than 1.1 times the central bank's benchmark interest rate.

With the new rules blocking his dream, Wang decided that borrowing money from bank was too costly and instead turned to a pawnshop.

He chose to mortgage his first apartment for 400,000 yuan with Beijing Huaxia Pawnshop Co, Ltd. He then registered with a real estate agent to sell his first apartment. He soon made a deal where the buyer agreed to give him a down payment of 400,000 yuan.

With the money, Wang then paid off his pawnshop loan and successfully bought the larger apartment without a bank loan.

Li Tiejun, a Beijing Huaxia Pawnshop Co, Ltd manager, said since the banks had tightened the rules for loans on second apartments, the trade volume in respect of real estate at his pawnshop had soared 40 percent.

Likewise, Xu Yunpeng, manager of Beijing Bao Rui Tong Pawnshop, claimed its trade volume in real estate had risen 30 percent since September.

In Thursday's Beijing Daily newspaper some pawnshops advertised for potential customers by claiming they will give out money for mortgages as quick as three to five days.

Xu suggested that such a mortgage should not exceed any more than six months, otherwise the redemption fee would become too large to make the deal worthwhile for customers.