Homebuyers face higher expenses on tighter rules

Responding to Beijing's alarm at the sharp rise in home loans and soaring property prices, some banks in major mainland cities have scaled back their preferential mortgage interest rates to 85 per cent of the benchmark rate from 70 per cent.

Banks recently have been making home loans at a discount to the benchmark rate, currently at 6 per cent. Property consultants said Beijing had not issued any announcement to raise rates, but first-time homebuyers in Beijing, Shanghai, Hangzhou and Nanjing had faced higher interest charges as individual banks tightened lending policies.

Kenneth Pak Kei-yuen, the general manager of Midland China's Beijing branch, said banks had to respond to central government policy, which now is aimed at reining in loan growth and cracking down on property speculation. 'It will not be surprising to see mainland banks further raise mortgage rates in the coming months,' he said.

Pak said transactions in Beijing had tumbled 70 per cent this month, compared with December, as buyers held back as they expected the government would impose tougher measures to curb price rises.

Last Wednesday, China Banking Regulatory Commission chairman Liu Mingkang said the government would slow loan growth this year to about 17 per cent from more than 30 per cent last year as it tried to balance economic expansion with managing credit risk.

Clement Luk, Centaline Property Agency's chief executive for the eastern and northeast regions, said there was a similar situation in Shanghai, Hangzhou and Nanjing, noting that the less generous discounts would affect those with lower incomes.


'These buyers can ill afford a few hundred more yuan a month in payment after banks reduce the discounts on mortgage rates,' he said.

Some homebuyers who bought units last month were told this month's mortgage loan quota was full.

'Fortunately, most buyers will schedule the date for completion of the transaction after they have secured the mortgage loan,' Luk said.

'Otherwise, buyers will have problems in getting money to complete the purchases.'


Last week, the Shanghai office of the People's Bank of China said banks in the city lent 99.58 billion yuan (HK$113.31 billion) for new mortgages last year, up sharply from 5.8 billion yuan in 2008.

Luk said the tightened lending policies would have an effect on buying.


Transaction volume this month plunged 50 per cent from December, as the special tax break on property resales ended. Previously, a 5.5 per cent business tax was imposed on those who sold their property within five years of purchase. But from January 1 that has been cut to two years.

Buyers also feared that there would be further measures aimed at curbing price increases. 'But there is no sign of panic selling, although sales have slowed,' Luk said.

Vincent Luk Fung-siu, the general manager for eastern China at property consultant DTZ, believed banks would not oppose the government's policy in increasing home loan rates in the short term.


'We have seen a dramatic fall in property transactions, partly because no new projects have been put on sale as the Lunar New Year approaches,' he said.

According to Xinhua, Nanning, in the southwest, could become the first mainland city to ban the sale of unfinished homes to curb speculation.

In contrast, Guangzhou might relax the rule for pre-sale in order to increase new supply and thus stabilise prices, according to property news website


Smaller discount

Banks on mainland scaling back special mortgage rates

Property transactions in Beijing this month have plunged by: 70%