Mainland China banks tighten lending as quotas for property loans filled

Lenders raise interest rates and delay release of funds in the wake of a surge of applications, pointing to a sales slump in secondary market

PUBLISHED : Wednesday, 16 October, 2013, 12:00am
UPDATED : Wednesday, 16 October, 2013, 5:13am

Mainland banks are close to filling their mortgage quotas for the year and have begun turning off the credit tap, a move that could trigger a sharp fall in home sales in secondary market, agents say.

Some banks in Shenzhen increased their mortgage rates to between 10 and 15 per cent above the regulatory benchmark lending rate last month due to tighter cash conditions.

Big lenders Agricultural Bank of China, Bank of China and China Construction Bank raised their rates to 110 per cent of the benchmark rate, according to media reports, and the Industrial and Commercial Bank of China increased its mortgage rate to 115 per cent of the benchmark.

The increase had an immediate impact on sales in Shenzhen, said Andy Lee Yiu-chi, chief executive for southern China at property agency Centaline China.

"Home sales in the secondary market in Shenzhen fell up to 20 per cent last month because of the higher rates," Lee said.

The big jump in home lending rates came as banks approached the limits of their lending allowances, and wanted to put the brakes on further loan growth ahead of the third plenum next month of the Central Committee, the Communist Party's decision-making body.

In recent months mainland banks have advanced home loans at discounts of up to 10 per cent on benchmark rates, which contributed to soaring growth in home sales and prices.

Last month, new-home prices in 100 cities tracked by Soufun were up 9.5 per cent from a year ago to an average 10,554 yuan per square metre, with major cities seeing double-digit price rises. Beijing's new-home prices rose the most, up 27 per cent from a year ago, followed by Guangzhou (24.8 per cent), Xiamen (21.3 per cent) and Shenzhen (21.2 per cent).

Buoyed by a big rise in sales, most developers have locked in most of their sales targets this year and continue to bid aggressively for development sites.

Sunac China paid 10.3 billion yuan (HK$13 billion) for a commercial-residential site in Tianjin last month, setting a record price per square metre for the city. It said that in the first nine months it had achieved contract sales of 36.4 billion yuan, up 71 per cent from a year ago.

Kenneth Pak Kei-yuen, a senior general manager in Midland Realty's Beijing office, noted that banks were not only raising interest rates but had also begun slowing the release of funds.

"Lots of people have complained to banks and appealed for an earlier release of money. Some have bought bigger flats and desperately need cash to make their initial down payments," he said.

Previously, Pak said sellers would receive the money within two weeks at the latest.