China’s Tighter Loan Market May Be Slowing Down Home Sales

Higher mortgage rates and vanishing loan discounts may make it harder for China’s real estate developers to sell homes this year, as the government continues to rely on financial sector restrictions to slow down the real estate market.

Without introducing new policy measures, the country’s state-owned banks may be helping to put the brakes on China’s home prices, which have risen by as much as 20 percent year on year in major cities during recent months.

In Beijing, which led the nation’s big cities with a monthly increase in average home prices of 2.12 percent from December to January, the local branch of China Construction Bank, now charges buyers of first homes the full benchmark mortgage rates. Up until a few months ago the bank, which is China’s biggest mortgage lender, had been offering 15 per cent off those rates for such borrowers.

For home owners looking for a loan from the Bank of East Asia in Beijing, they can expect to pay a 20 per cent premium on the benchmark rates.

According to government policy, lenders may offer 15 percent discounts to first-home buyers, but they are not obligated to offer these incentives, and since the government began liberalising bank interest rates last year, banks are permitted to ask for higher rates according to market conditions.

Pricier Loans and Fewer Sales

While many wealthy individuals in China are able to purchase homes with out bank financing, the lack of available credit is likely to be closing many other potential buyers out of the market.

A report by Shanghai Uwin Real Estate Information Services that was released earlier this month showed that the volume of new housing purchased during January, excluding government-funded affordable housing, fell 29.6 percent compared to the same period last year.

The same study showed that compared to December sales, the volume of homes sold in January was also down, with sales for the month totalling 27.6 percent less than in December.

Figures from the China Index Academy, which is part of online real estate firm Soufun, showed a similar drop in activity. According to the Academy, the total floor space sold in January fell across all of China’s ten largest cities, with Beijing showing the sharpest drop at 36.8 percent.