The future could be gloomy for mortgage lenders. A research report issued by the financial research institute of the Industrial and Commercial Bank of China Co. Ltd. (ICBC) on July 8 forecast that China's housing prices could drop from now until the first half of next year, because of the government's stringent monetary policy and the sluggish performance of global capital markets.

Home prices, which had been rising astronomically in China, started falling at the beginning of this year. Figures from the National Bureau of Statistics showed that home prices in 70 large and medium-sized cities rose 8.2 percent in June, year on year. This represented a decline in the growth of home prices for the fifth consecutive month.

Meanwhile, a downturn in the property market prompted prospective home buyers to wait before deciding to purchase a house or an apartment, believing that prices would come down even more. In some cities, home prices remained high, but buyers were few. In Beijing, for instance, a total of 4.57 million square meters of residential space was sold in the first six months of this year, a 47.1-percent decrease compared with the same period last year, according to a report released by the Beijing Municipal Bureau of Statistics on July 22. Meanwhile, the number of vacant houses rose. In late June, the aggregate amount of vacant residential space stood at 127 million square meters, a 2.2-percent increase from the same period last year.

This does not bode well for property developers, many of whom must obtain large loans to develop residential homes. At a real estate industry forum in Hainan on June 27, Ling Ke, President of Gemdale Group Co. Ltd., a real estate development company, said 70 percent of property developers' loans were from banks. Should the housing market take a turn for the worse and buyers stop buying, developers could default on their loan repayments, leaving banks with a load of bad debt.

With all these factors coming into play, banks now are worried whether the housing market downturn will increase their bad loans and drag down their performance.

Withholding home mortgages

Many borrowers who bought a home earlier at higher prices have been upset that prices are dropping. Some even have refused to make their payments on their home mortgages.