With mortgage payments cheaper than rents, small flats become hot property in China
But bigger down payments mean banks are yet to see a recovery in their mortgage loan businesses
After a five-year property slump, an increasing number of tenants in China’s biggest cities are opting to buy small flats with their years of savings, betting on a turnaround in the country’s home market that has yet to arrive.
However, the recent buying spree – centred on low-priced pre-owned homes – did not give banks’ mortgage loan businesses an effective boost because buyers raised their down payments to avoid interest costs.
“More tenants are feeling that paying a few thousand yuan a month to rent a flat is not worth it given the current low home prices,” said Li Tongqiang, a broker at property agency Lianjia in Shanghai. “They would rather spend 2 million to 3 million yuan (US$295,000 to US$442,500) to own a residential unit.”
Most of the buyers were first-time homeowners, Li said, adding the small homes they were looking to purchase were typically of less than 50 square metres (538 sq ft).
“The monthly instalment for repaying the mortgage loan now is 700 yuan lower than the rent,” Pan said. “I made the [purchase] decision quickly because of the gap.”
Centaline Property said homes priced below 3 million yuan made up 70 per cent of the company’s total transactions in April, compared with about 64 per cent a year earlier. The trend persisted last month.