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Easing home loans not likely to revive China market

BEIJING — Real estate consultant Zhou Bingguo had expected to find a few buyers for the 20 apartments for sale next to Beijing’s Central Business District in the first week of October. It was after all the Golden Week holiday, traditionally a peak period for home sales and China had just eased mortgage restrictions.

BEIJING — Real estate consultant Zhou Bingguo had expected to find a few buyers for the 20 apartments for sale next to Beijing’s Central Business District in the first week of October. It was after all the Golden Week holiday, traditionally a peak period for home sales and China had just eased mortgage restrictions.

“Quite a few people visited, but nobody bought. People are still waiting for prices to fall,” said Mr Zhou, a consultant in the asset management department of CBD Private Castle, a residential development.

China is lowering down payment requirements and discounting mortgages as declining housing sales weigh on Asia’s largest economy. After four years of government restrictions to cool housing prices that had tripled since 2000, the central bank is reversing course, making it easier for homeowners to buy second properties.

However, these investors are not likely to get back into the market, several analysts said, until prices become more affordable.

“The property downturn will continue as buyers stay on the sidelines in anticipation of further price declines,” said Hong Kong-based Standard & Poor’s credit analyst Bei Fu.

“Longer term, the central bank’s latest move is a big step forward. It will allow more buyers to qualify for preferential mortgage rules and should help to release pent-up demand,” she added.

Chinese Premier Li Keqiang is trying to prevent economic growth this year from drifting too far below the government’s 7.5 per cent target, already the slowest pace since 1990. The real estate sector, as well as related sectors including electric machinery, chemicals and metals used in construction, accounts for more than a quarter of the economy, UBS economists estimated.

New home sales slumped 11 per cent to 3.43 trillion yuan (S$713.6 billion) in the first eight months of this year as the government curbed credit, reversing a 27 per cent jump last year, data from the National Bureau of Statistics showed.

The average new home price in 100 cities tracked by real estate firm SouFun Holdings fell 0.9 per cent in September from August, dropping for the fifth consecutive month. The price rose 1.1 per cent from a year earlier, narrowing for a ninth month in a row.

Weakening demand in a property market that “has lost power” will dim China’s economic prospects, dragging growth lower in the world’s second-largest economy, warned Mr Li Daokui, a former central bank adviser. In a similar vein, Moody’s Analytics economist Alaistair Chan said housing “remains the key downside risk to the economy”.

The new rules give homeowners who have paid off their loans and want a second property the same advantages as first-time buyers, the People’s Bank of China (PBOC) — the central bank — said on Sept 30.


Lenders can now give these second-home buyers a mortgage discount of as much as 30 per cent of the central bank’s benchmark rate. And buyers will need to provide a down payment of only 30 per cent, a drop from the government’s previous 60 per cent requirement, which Beijing, Shanghai, Guangzhou and Shenzhen increased to 70 per cent last year to curb soaring prices.

The central bank also eased a ban on mortgages for people without home loan debt who want to buy a third home, allowing banks determine down payments and rates. The move comes after all but five of the 46 cities that imposed home purchase restrictions since 2010 eased or removed such limits in recent months.

“Most people are not in a hurry to buy,” said Mr Jinsong Du, a Hong Kong-based property analyst at Credit Suisse.

He said that homeowners had already managed to circumvent the rules to qualify for loans to new buyers: More than 80 per cent of existing mortgages were for first purchases, even though in recent years such buyers made up only 35 per cent of all home purchases.

“The wait-and-see sentiment is still prevalent” among buyers, said Mr Donald Yu, Shenzhen-based analyst at Guotai Junan Securities. Meanwhile, developers “still feel that the situation hasn’t reversed, and it’s still best to keep prices stable. They will still moderately lower prices, but not as steeply as before”, he added.


Lenders probably will not significantly cut rates because profits are their primary goal, Moody’s said. Mortgages typically generate lower returns than other loans, Essence Securities noted.

The average interest rate for loans to individuals, 66 per cent of which are home mortgages, was 47 basis points lower than for corporate loans in the first half at Industrial & Commercial Bank of China, the nation’s biggest lender, according to its financial report.

Only five banks have released revised mortgage rules as of this week in Beijing to adapt to the central bank announcement, according to Bacic 5i5j Group, the city’s second-biggest realtor for existing homes.

While the likes of Shanghai Pudong Development Bank, Postal Savings Bank of China and Bank of Beijing now offer discounts of as low as 10 per cent below the PBOC’s benchmark for first-home buyers, ICBC and China Construction Bank, the nation’s second biggest, are keeping their mortgage rate unchanged at the benchmark, according to the property agency.

CBD Private Castle’s Mr Zhou said the lower rates will not help much with his apartment sales because prices have gone too far above income levels. In the development he is marketing, where apartments mostly exceed 1,700 sq ft, prices are above 8 million yuan.

“How many average Chinese households can afford that?” he said.

“Even if you can buy it with a 3 million yuan loan, the interest payment over 20 years will be almost as much as the loan itself. Your entire life is ruined.” BLOOMBERG

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