China property

Mortgage users say new home sales discrimination is rife, as more developers demand upfront payments

Price controls have resulted in new homes being sold at 20-30pc discounts, which has had the knock-on effect that developers are reluctant to sell

PUBLISHED : Tuesday, 10 April, 2018, 2:32pm
UPDATED : Tuesday, 10 April, 2018, 7:50pm

Homebuyers in some Chinese cities claim they are being barred from purchasing new properties, unless they pay in cash, without the use of a mortgage.

A combination of factors have led to the phenomenon, say commentators, including more new home price controls, a shortage of supply, and long waiting periods for mortgages to be approved by lenders.

Price controls in some cities such as Shanghai and Beijing have resulted in new homes being sold at 20-30 per cent discounts, which has had the knock-on effect that developers are either reluctant to sell, or insist on getting cash payments, even upfront, while refusing to sell to those who cannot get immediate access to ready cash.

But the shift in attitudes by developers is now being seen as a major hurdle to the Chinese government’s ultimate goal – of taming a runaway market, and making more homes affordable to ordinary people.

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Zhang Ning, a 28-year-old office worker, moved to Hangzhou from Beijing this year hoping she and her husband could afford a home there. But she soon found out it was wishful thinking.

After making enquiries at various projects in the city, she realised many were persuading her not to even bother registering, after finding out she needed to apply for a loan to buy.

And as a newcomer to Hangzhou, the facts she hasn’t yet made any local security fund payments or has a local hukou (resident's permit), block her from buying a second-hand home altogether.

“Every time I said I can’t pay in full and had to borrow from banks, I felt I was being looked down upon,” she said. “They would tell me ‘this flat costs just 1.5 million yuan (US$238,200)’, and imply that I should be able to pay that amount in full.”

Zoe Ding, another Shanghai resident, was interested in homes developed by China Resources Land in the Jingan district, and also found the system increasingly biased against those who plan to rely on a mortgage.

“You can tell from sales people’s faces that they are not interested in chatting with you, after you tell them you plan to borrow 70 per cent [of the purchase price] from a bank,” said Ding.

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“I have the nasty feeling that people like me have no chance of becoming winners of this particular lottery.”

China Resources offers three- and four-bedroom flats for 80,000 to 93,000 yuan (US$12,670) per square metre at the site, while equivalent second-hand homes in the same project often sell for 110,000 per sq m. In theory, buyers can immediately sell their purchases, and enjoy a quick profit, if they chose.

One new residential project in Qiantan, one of the city’s priority government development areas, had a flood of interest after it opened last week for registration. But what’s happening there already, is pretty typical of what’s playing out at many others across the country.

It’s offering units as small as 91 sq m, priced at 78,000 yuan per sq m, which means a total cost of 7.1 million yuan. Nearby second-hand homes of the same size are being sold for around 90,000 yuan per sq m.

But an online marketing flier for the new site shows buyers need to hold a local hukou or have made five years of consecutive social security payments to be eligible to buy.

They are also expected to pay a whopping 1 million yuan, via bank card, upfront on-site and present proof of having no less than 2.85 million yuan in deposit, just to register.

And that’s still no guarantee of being allowed to buy, with a lottery held several days later to decide who can ultimately win the right.

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The promotion enthusiastically insists buying a new home there for 7-8 million yuan is a “great bargain”, and well worth the expected hours of queuing.

“Because developers are selling these projects at prices below expectation, they want to ensure they actually get the cash as soon as possible,” said Zhang Zhijie, vice head of the marketing and research agency China Index Academy’s Shanghai branch. “So vetting customers in this way has became natural.

“Publicly, they aren’t saying ‘no’ to mortgage holders but they can often require the mortgage to arrive within a month, which is sometimes almost impossible.”

The rather mocking sales message among agents is clear: ‘Fully paid-up customers please come in; mortgage users, don’t block the door; and anyone using housing provident fund money better get on their bikes’. Provident funds are government-backed, and notorious for their lengthy application processes.

Other restrictive policies are also surfacing. One Hangzhou resident, who would only give his surname as Liang, told South China Morning Post that when he was researching new home projects on the outskirts of the city, the majority demanded full payments.

The only project that did accept mortgage-backed payments, also expected him to buy a parking space too, priced 200,000 yuan.

Daniel Dong, who plans to buy a second home in the Baoshan district of Shanghai, said discounts are being offered as a further incentive to buy in full.

“Although many are well prepared with ample cash available,” he added, “sales still aren’t guaranteed, given the limited number of flats for sale.”

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Last week, the latest policy announced by the Hangzhou government requires all projects which attract applicants that outnumber available homes to hold buyer lotteries, but with the caveat that a set percentage of homes must be sold to first-time buyers.

Chengdu and Changsha have imposed similar rules, but lotteries have already been commonplace in Shanghai over the past year.

In the capital Beijing, speculation swirled last week, too, that the municipal government would impose lotteries for all projects with capped price lists, which analysts said could deal a hefty blow to developers unable to vet intended buyers.

Guo Yi, chief analyst with Beijing property agency Sysw1n, said new home sales over the April 5-7 holiday fell 76.8 per cent compared with the New Year holiday, while secondary home sales slipped a far less 9.6 per cent.

She attributed the yawning disparity to the fact that controls and conditions on new homes are far stricter than on the secondary homes market.

More Beijing developers may well be willing to accept loans as payment, but down payments are a steep 80 per cent, compared with 70 per cent further south in Shanghai.

Guo adds that while lottery systems do offer more buyers a fairer option, they also handicap developers’ ability to vet customers, funds can take longer to clear, and many developers are losing interest in opening new projects for sale, or even buying plots, and all those could now exacerbate the already-short supply.

Additional reporting by Daniel Ren in Shanghai