The central government is encouraging home buyers to use
mortgages from public housing funds, as regulators tighten controls
on loans from commercial banks.
The Ministry of Construction yesterday announced that a mortgage
with a maturity of more than five years will continue to carry an
annual interest rate of 4.59 percent.
Meanwhile, the minimum mortgage rate from commercial banks is
now 5.81 percent following Friday's hike by the People's Bank of
China.
To curb China's frenzied investment, the central bank raised
interest rates for the second time this year and the hike will see
commercial banks' one-year benchmark deposit and lending rates
raised by 0.27 of a percentage point to 2.52 percent and 6.12
percent respectively.
However, the deposit rate in the public housing fund has been
increased from 1.71 percent to 1.80 per cent as of Saturday to
encourage homebuyers to save more.
Homebuyers are required to contribute 5-12 percent of their
salary to the public housing fund, and their employers are required
to deposit the same amount.
The property interest rate change came after China Banking
Regulatory Commission (CBRC) called on banks and other financial
institutions to tighten their property lending management last
Wednesday.
It expressed concern about the possible huge credit risks in the
sector, which many say is overheating with nearly 24.2 percent
growth during the first six months.
"The interest rate hike is another warning to property
developers and commercial banks," said Xie Guozhong, chief
economist of Morgan Stanley in Asia. "It will increase costs in
real estate development and shows the government's determination to
cool down the market."
Insiders said more homebuyers will choose mortgage loans from
public housing funds instead of commercial banks, and this may lead
to property developers feeling the pinch from capital shortage.
Zhao Zhuowen, general manger of Guangzhou-based
Tongchuangzhuoyue Real Estate Company, said the application process
for a public housing fund mortgage takes at least one month longer
than the application from commercial banks, meaning a delay in
payment for developers.
"If more and more buyers choose to do so, this will become a
challenge for developers as they have already been tested by the
interest rate hike," said Zhao.
"It's important to curb frenzied development as some may leave
the market when the financial burden increases."
With the government taking measures to cool down the heated
market, buyers are taking a "wait and see" approach in case
property prices decrease.
Zhao said in Guangzhou the number of transactions in July has
decreased 40 percent compared with June.
"But that doesn't necessarily mean a price hike in the future
unless the government offers more low cost housing," said Zhao.
However, demand and government encouragement for low cost
housing is not translating into action by developers.
Investment in low cost housing increased 5.7 percent year-on-year
to 27.5 billion yuan (US$3.4 billion) in July.
Total investment in the property sector reached 941.1 billion
yuan (US$117.6 billion), according to the National Bureau of
Statistics (NBS).
(China Daily August 21, 2006)