Investors feel heat of tighter credit rules
Shanghai property investor Bob Gu faces a dilemma. He is planning to sell some assets to take advantage of the current market peak and, later during the anticipated home price correction, buy a high-end property to upgrade his portfolio.
'But I am afraid my plan may not be working as it is not easy to re-enter the market, with banks starting to tighten lending. Financing will become a problem,' said Gu, who owns six Shanghai apartments ranging from 30 to 120 square metres.
Gu received a mortgage equal to 70 per cent of the property's value when he arranged for his third-home loan last year, even though banks theoretically were restricted to providing loans equal to 60 per cent for investment home purchases.
'I got a 60 per cent mortgage for my sixth-home purchase early this year after providing sound cash and asset proof,' said Gu, who said banks had since tightened lending.
Last week, the State Council raised mortgage rates on second homes to 1.1 times the central bank's benchmark lending rate instead of the current 80 per cent. Buyers purchasing their second homes must now pay at least a 50 per cent deposit, up from 40 per cent. No mortgage lending will be provided for third-home purchases. The government also sets a minimum 30 per cent down payment on first homes bigger than 90 sqmetres.
The measures came after property prices in 70 cities jumped a record 11.7 per cent year on year last month. Analysts said home prices in primary markets rose almost 35 per cent with strong volume in the second half of last year. Prices continue to rise this year.
To ensure enforcement of the new cooling measures, the China Banking Regulatory Commission on Tuesday said it would require large banks to conduct quarterly stress tests on property loans and ensure the risks attached to such lending were strictly controlled. Financial institutions must implement the central government's property controls and use mortgage loan policies to 'strictly' limit housing speculation, Liu Mingkang, head of the CBRC, said on its official website.
In the face of the series of measures, some speculators or short-term investors reportedly rushed to sell properties. Mainland newspapers reported that a Zhejiang investor offloaded more than 20 units in Beijing, cashing in 130 million yuan.
Estate agents said a growing number of would-be homebuyers in Shenzhen, Shanghai and Beijing had walked away from signed preliminary sale and purchase agreements. Some worried prices would fall while others failed to clinch mortgages amid the tightened rules, agents said.
But there are still optimists in the market. Potential buyers who do not believe the rising home price trend will be reversed over the longer term are waiting for the right timing to enter the market.
Lee Hing-yin, a director of Colliers International's research and advisory department, is an example.
Lee, who regretted not buying a flat when he moved to Shanghai two and a half years ago, is waiting for the coming price correction. 'I will not miss the boat,' said Lee, who expected luxury homes could see a 15 to 20 per cent decline in Shanghai amid this round of austerity measures.