Rate incentive offered for low-cost housing

PUBLISHED : Tuesday, 05 February, 2008, 12:00am
UPDATED : Tuesday, 05 February, 2008, 12:00am

Beijing will ease lending terms for developers of low-cost housing to meet market and social demands.

Developers of low-cost housing might pay interest of up to 10 per cent lower than the prevailing benchmark rate and enjoy a loan repayment period extended by two years to five years, the People's Bank of China and the China Banking Regulatory Commission said in a joint statement.

The current lending rate for three- to five-year loans stands at 7.74 per cent.

Consisting of 18 rules, the new policy will allow developers to borrow from all financial institutions, including joint-stock commercial banks and foreign capital banks. Previously, developers were restricted to accessing only state-owned commercial banks and mortgage savings banks.

Dated January 18 but announced yesterday, the policy will become effective on February 17.

'[The changes] are in line with Beijing's policies to boost the supply of affordable housing for those in the low-income group,' said Lee Hing-yin, director of research and consultancy at Colliers International.

He believes the move can ease the financial burden of local developers at a time when interest rates are climbing. It also will increase supply to meet market needs.

Analysts said the profit margin for low-income housing was less than 10 per cent in general, compared with about 30 per cent for higher-end residential projects. That is why the government needs to give more favourable terms to lure small developers, which are more cash-strapped to start with.

Nevertheless, Mr Lee thinks the new policy will not depress home prices as low-income housing is quite a different market.

The average home price in 70 major cities rose 10.5 per cent year on year in December, official figures show.