The mainland's big state banks and their smaller rivals in Shanghai have rapidly revived efforts to attract local mortgage clients, offering first-home buyers discount rates much lower than last year's industry average.
The move comes at the same time as cashed-up Shanghai locals use a loophole in the mortgage approval system to buy a second or even third home as investments, gambling on the uptrend of property prices in China's richest city this year.
At least three of the Big Four state-owned banks - Agricultural Bank of China, Bank of China and China Construction Bank - started to offer a 10 per cent discount to the benchmark mortgage rate this month to those who want to buy their first home in Shanghai, according to sources. The minimum requirement of property down payment remains unchanged at 30 per cent.
Agricultural Bank of China's (Agbank) Shanghai branch is understood to have been among the first to announce the mortgage discount a few weeks ago. Agbank's move is seen in the local banking and property industry as a catalyst pushing more banks to join this latest wave of mortgage business competition.
'It's no longer a secret,' said one person who declined to be identified as he was not authorised to speak to the media. 'Initially, Agbank staff promoted the 10 per cent discount thing quietly and privately, but now it's public knowledge among property agents and buyers.'
It is not known how long such mortgage discounts will last but Agbank's recent strong efforts to promote mortgage business in Shanghai came after a decision from management at the bank's headquarters in Beijing, said one of the people.
Such moves are certainly good news to some cash-hungry property developers as they want quick capital returns to ease financing troubles. Beijing had asked domestic banks to support first-time home buyers, the official China Securities Journal reported on Tuesday, citing a government document. Share prices of most listed developers rose on the news with some stock even hitting the 10 per cent daily uplimit.
Some smaller rivals of Agbank such as Shanghai Rural Commercial Bank also recently began to offer 10 per cent discount mortgage rates to first-home buyers in the city, said one of the people. Mid-sized China Merchants Bank and Shenzhen Development Bank are mulling similar moves to lure property investors in Shanghai, one of the most expensive cities on the mainland in terms of living cost and property prices.
It is so far unclear whether such policies might spread to other mainland cities as different branches of the big banks had the authority to set mortgage rates above or below the regulatory benchmark rate, said the people. Last year, many banks offered 1.1-1.2 times the benchmark rate amid the government's efforts to curb fast-rising property prices.
Meanwhile those who want to buy second or third home in Shanghai are exploiting an unusual loophole to pretend they are first-home buyers when applying for mortgages.
A technical error in the current approval system has meant the banks can only read ID cards with all Arabic numerals, something they have to do to verify if the ID card holder is a first-home buyer.
This meant someone whose ID card contained the letter 'x' rather than all Arabic numerals could apply for as many mortgages as they wanted as a first-home buyer, said a banking source in Shanghai.
'Some rich people are looking for those so-called X ID cards. They want to collect the cards, buy properties then sign an under-the-table deal with those card holders to make sure the rich people are the real owners of these properties,' said one banker.
He said this practice reflected the high call for investment properties.
The problem has been identified and officials are working to fix it.
Additional reporting by Daniel Ren