Sherry Sheng, a 29-year-old Shanghai policewoman, bought herself a 4,000 yuan (HK$4,930) black fur jacket, splurging for the last time before she starts paying off the mortgage on her first home.
Sheng is part of a generation of middle class that mainland media have dubbed fang nu, or housing slaves, a reference to the lifetime of work needed to pay off their debts. They are taking on mortgages even as Beijing maintains property curbs to damp prices that have almost tripled since the mainland embarked in 1998 on a drive to increase private home ownership.
"It's a treat for myself because I could never afford such a luxury after I start repaying my housing loans next month," said Sheng, who paid 1.1 million yuan for the one-bedroom flat on the city's western outskirts and will be using about 70 per cent of her salary to service her mortgage.
The mainland's growing middle class reaching for homeownership helped property prices rebound starting in the second half of last year. They rose 1 per cent in January from December, the biggest gain in two years, according to real estate website SouFun. Home prices in Beijing and Shanghai each rose 2.3 per cent from December.
Average per-square-metre prices in 100 cities tracked by SouFun are five times average disposable incomes. A 100-square-metre (1,076 sq ft) flat today costs about 40 years' income, according to SouFun and government data, even as salaries have more than quadrupled since 1998.
Sheng was able to buy her 50-square-metre flat after borrowing a combined 770,000 yuan through a 20-year mortgage from Agricultural Bank of China and a 15-year loan from the local housing providence fund. Her parents helped with the 30 per cent down payment. She will repay about 4,000 yuan a month for the home, a one-hour subway ride from central Shanghai's historic Bund that cost 16 times her annual salary, based on the price of the flat and her income.
Chinese homebuyers typically use 30 to 50 per cent of their monthly incomes to repay mortgages, said Wu Hao, a manager at the loan brokerage of Bacic & 5i5j Group. It advises clients to keep monthly repayments lower than one-third of their incomes.
The "general guideline" among Chinese banks was that a borrower's salary should be at least twice their monthly payment; otherwise they'll be asked to submit proof of assets to show their ability to service the debt, Wu said. Using 70 per cent of monthly income to pay the mortgage was "very rare," she said.
Mortgage rates, which move with the benchmark interest rate, usually have maturities of five to 30 years. The People's Bank of China's benchmark lending rate for loans longer than five years now stands at 6.55 per cent.
Outstanding home loans grew 12.9 per cent last year to 7.5 trillion yuan, the slowest pace in four years, as the mainland tightened lending, according to central bank data. A credit binge in 2009 fuelled inflation, weakened banks' financial buffers and led to a rise in soured loans.
Still, analysts remain upbeat on Chinese banks. Mortgage loans accounted for 20 per cent of the total loan portfolio of China Construction Bank, the nation's largest mortgage lender, at the end of June, while at Industrial & Commercial Bank of China, the second largest, the ratio was about 14 per cent, according to their first-half earnings reports.
Stable property prices this year in 2013 "should benefit CCB the most, as it has the highest real estate-related exposure among the H-share banks", Daiwa Capital Markets analysts Grace Wu and Leon Qi wrote last month. H shares are the shares of Chinese firms traded in Hong Kong.
Developers also are gaining as homebuyers rush to buy because they expect prices to rise further. China Vanke, the biggest developer that trades on Chinese exchanges outside of Hong Kong, said sales rose 56 per cent last month from a year earlier, while Evergrande Real Estate Group, the nation's largest developer by sales volume, said its January sales more than tripled.
The volume of residential property sales on the mainland will rise this year, driven by improved funding to developers, Fitch Ratings said last month. The property market had already "heated up", while home prices in major cities might rise as much as 10 per cent in the next three months, said Johnson Hu, a property analyst at CIMB-GK Securities Research.
Loose monetary policy would boost housing prices and sales in the near term, Jinsong Du, Credit Suisse's head of property research, wrote this month.
Credit Suisse favoured Hong Kong-traded Chinese developers with "strong" sales and "less expensive" valuations, such as Country Garden, controlled by the mainland's richest woman Yang Huiyan, and Poly Property Group, a developer that is partly state owned, Du said. Country Garden and Poly Property trade at about eight times estimated profit, compared with 13.4 times for the Hang Seng Property Index, according to Bloomberg.
Since April 2010, Beijing has moved to stamp out speculation in the property market by raising the down-payment requirement on first mortgages to 30 per cent from 20 per cent, ordering a minimum 60 per cent deposit for second-home purchases and an increase in rates for second loans. It also imposed a property tax for the first time in Shanghai and Chongqing, and enacted restrictions in about 40 cities, such as capping the number of homes that can be bought.
The new government may introduce more property curbs when it takes power in March. Beijing may tighten credit policies for people buying a second home or raise the tax on gains on transactions of existing homes in the most affluent cities, the China Securities Journal reported this month, citing a source.
Home sales in the 10 biggest mainland cities almost quadrupled to 8.5 million square metres in the first five weeks from last year, China Real Estate Information said.
Mainland urban residents' average disposable income rose 12.6 per cent last year to 2,047 yuan a month, according to the statistics bureau. The average one-square-metre of new floor space cost 9,715 yuan in December, according to SouFun.
The shift to private home ownership stems from reforms started in 1998, when then premier Zhu Rongji privatised state-owned housing provided at low rents to urbanites, transferring home ownership from the government to the families occupying the dwellings.
The idea of buying a property with borrowed money did not become popular until 2004 when home prices in major cities started rising fast enough to compensate for interest payments, enticing buyers to borrow to buy property, said Liu Yuan, a researcher at Centaline Property Agency.
Today about 50 to 70 per cent of home buyers in Shanghai, Beijing and Guangzhou use mortgages, borrowing an average 50 per cent of a home's value, according to Centaline.
Cai Yue, a 33-year-old manager at a pharmaceutical firm, bought her first home 10 years ago after graduation, among the first wave of Chinese taking out mortgages as Beijing tried to foster home ownership by offering income tax rebates and the cheapest funding in two decades.
Cai borrowed 50 per cent from the bank for her 300,000 yuan apartment in 2003. Her monthly payment was 1,600 yuan, about 40 per cent of her salary at the time.
With home prices of 6.8 times of her annual income, Cai was able to pay off her debts in 2007 and buy a second home for 2 million yuan that same year. Her first home, the 75-square-metre flat about 8 kilometres north of the Bund, has surged sixfold in value. Cai paid off all her mortgages in December and is barred from buying a third flat in Shanghai.
"The housing slaves term is quite reasonable because it will put a lot of burden on home buyers if housing payments are more than half of their incomes," said Liu Li-Gang, an economist at ANZ Group.