Lenders open doors to mortgage hunters
Getting a mortgage in China was once unthinkable as banks lent only to state companies. Now they are lending to anyone who can prove he or she has a steady job and income.
Foreigners applying for a mortgage have found the process straightforward and efficient, with terms much like those offered in Hong Kong. But they should be aware of foreign exchange risk, in view of speculation that the yuan may appreciate.
'Our advice to non-mainlanders is to take a [yuan] mortgage,' said Jessie Zhou, sales director of Shanghai Newtown Real Estate Agent in Gubei, Shanghai, an upmarket district home to thousands of people from Taiwan, Hong Kong, Japan, South Korea and the west.
'If your asset is in yuan, it is wiser to have your debt in yuan,' Ms Zhou said. 'Banks will give you a 70 per cent mortgage for a new property and 60 per cent for a second-hand one.'
She said banks treated foreigners the same way as mainlanders.
Applicants needed to provide tax receipts, passports, visas showing date of entry into China, evidence of salary and proof of employment. The only difference was mainlanders had to show their marriage certificates.
'The property will be collateral, so the bank will do its own evaluation of its worth,' Ms Zhou said.
'Since the central bank sets the interest rates, they are the same for all banks. We recommend Bank of China and China Minsheng Bank.'
The alternative is to apply for a foreign currency loan from a foreign bank, which has the benefit of a lower interest rate.
The rate for a US dollar loan is 3.7 per cent, against 4.77 per cent for a yuan loan of less than five years and 5.04 per cent for longer than five years.
'The seller will receive yuan since the money has to be exchanged,' Ms Zhou said.
One downside is the exchange risk. Many people believe that China will revalue the yuan, which means that, if you hold a foreign currency loan, you will end up paying more on the mortgage.
The other risk is that, should you have to sell the property unexpectedly, you will end up with a large sum in yuan that you cannot exchange legally and a liability in foreign currency.
Estate agents said that, in reality, the yuan could be exchanged for a small fee through brokers.
In some cases, the vendor wants payment in foreign currency outside China, which means a hard-currency mortgage would be better.
Last year Singaporean Mary Leung paid a million yuan (about HK$932,479) for a villa in a residential development in Pudong, close to the international airport.
Ms Leung put down 30 per cent and borrowed the rest of the money from a domestic bank for five years, at an interest rate of 4.77 per cent.
'It was an easy transaction. The bank was keen to lend. The only difference with a mortgage abroad is that we had to start paying five months before the delivery of the house, which means that we are financing a part of the cost of construction,' she said.
Like most foreigners who buy a property in Shanghai, Ms Leung obtained a mortgage in yuan from a Chinese bank to finance the purchase.
She was impressed by the speed and simplicity of the process.
'The bank asked what other mortgages we had and wanted to know about our other assets. The more paper you provided, the faster the decision. It was a standard procedure.
'We met a government-appointed arbitrator who told us and the bank our rights and obligations and approved the document we signed. If something goes wrong, we can use the document to take legal action,' Ms Leung said.
Steve Campbell, a British marketing consultant who obtained a mortgage last year from the Industrial and Commercial Bank of China was not as impressed.
'The bank was professional but there was an alarming amount of taxes and fees. Chinese banks will have to improve their customer service in relation to mortgages. They were not easy to understand and no one explained the loans,' he said.
He said he paid his bank bills in Britain online.
'The Chinese banks are not there yet. Personal banking has a long way to go.'
