Lenders dim hopes of home ownership in China
Buying a flat remains a distant dream for many mainlanders as banks price mortgage loans higher and take a long time to approve applications
Many a mainlander received Lunar New Year wishes for the dream of home ownership to come true in the Year of the Horse, but the banks are providing a harsh dose of reality.
Lenders are tightening their mortgage policies, keeping the dream of owning a property just that for the millions priced out of the market.
While home loans are getting harder to secure, property prices may face downward pressure, analysts say, benefiting those who can afford to buy without a loan.
"Results from our latest survey on property loan information across major banks in major Chinese cities surprised us - in a bad way," said Edison Bian, an analyst with CCB International. "Credit conditions are far worse than we expected."
Bian expected the Hong Kong-listed mainland property stocks that he covered to trade at deeper discounts to their net asset value and had lowered his share price targets, he said in a research report last week.
He now expects Agile Property to trade at a 65 per cent discount to its net asset value, instead of the 55 per cent he expected earlier. For some developers, he has widened the discount by as much as 20 percentage points.
Bian was one of many analysts who expected the property market to get off to a roaring start in the first quarter, on the assumption of relaxed bank lending in the new year.
However, mortgage loans have now been priced higher, and approvals are taking longer than expected, although quotas have been raised at the big state banks in major cities, CCB International's latest survey shows.
Luo Jun, chief finance officer at Beijing Capital Land, said more and more mainland banks were confining their lending to developers on their own lists, mostly big and state-owned companies.
"Banks encountered liquidity problems earlier this year, but they are easing now," Luo told reporters on Monday. "Discounts on mortgage loans are rarely seen now because the funding costs of Chinese banks have risen and mortgage demand is surging."
The Beijing branch of China Construction Bank, the mainland's biggest property loan lender, now charges buyers of first homes the benchmark mortgage rates. A few months ago, it was offering 15 per cent off those rates for such borrowers.
Bank of East Asia requires a 20 per cent premium on the benchmark rates from all homebuyers in Beijing.
First-home buyers, by state policy, may enjoy a 15 per cent discount on mortgages, while second-home buyers need to pay 10 per cent above the benchmark rates, as part of the authorities' efforts to curb speculation and cool housing inflation.
Banks are permitted to price their loans higher as Beijing has scrapped a ceiling on lending rates as part of measures to liberalise the interest rate regime.
In the past, mainland banks cut property lending and other loans towards the end of each year but then rushed to make new loans at the beginning of the following year as their lending quotas were replenished.
But this year has turned out to be different, at least on the property front, with lending to other sectors offering higher returns.
The central bank will announce overall lending data for last month later this week or early next week. But it offers a breakdown by sector only on a quarterly basis.
"The property market will cool when banks tighten credit," said Jin Ruixin, a research director at Centaline Property Agency in Beijing. "The outlook for this year is not as good as before."
Home sales, measured by floor space, fell last month from December in all the top 10 cities monitored by the China Index Academy, the mainland's biggest real estate data provider. Sales plunged 36.8 per cent in Beijing and 30.7 per cent in Shanghai. The decline was partly due to the seven-day Lunar New Year holiday, which started on January 31.
Home prices, however, kept surging last month, with those in Beijing climbing 24.3 per cent from a year earlier.