With China’s banks facing competition for deposits from trusts on one side and online wealth management products on another, nearly 90 percent have ended mortgage discounts for first time home buyers.
The end of preferential rates was revealed in a recent survey of 69 bank branches across 22 cities by online real estate information provider, CRIC, a division of property agency E-House China. Beyond the cancellation of discount incentives, the study found that many banks were taking advantage of recently liberalised rules which allow greater flexibility for setting loan conditions to raise their rates to five to ten percent above the benchmark figure.
The end to the preferential rate program has accelerated in recent months, with 21 percent of bank branches surveyed still offering discount mortgage rates to first-time home buyers during December, compared to less than three percent in February.
Whether the banks have moved to end the incentive programs for purely commercial reasons or because of government prodding to cool down lending in the face of a potential property bubble was not indicated by the study.
Government Vows to Monitor Lending
The end of the mortgages discounts to consumers coincides closely with a statement by a government banking regulator that it will “strictly control” lending to property developers this year to reduce the risk of uncontrolled growth in the property market due to excess liquidity.
The China Banking Regulatory Commission (CBRC) identified the real estate industry as a sector that needs closer monitoring of lending, and indicates that it will conduct regular stress tests of bank loan portfolios and forbid wealth-management products from investing in commercial property.
Impact of Lending Practices Remains Unclear
The tighter approach to mortgage lending helps to explain the recent slow-down in home sales price growth, as well as reports of plummeting transaction volumes this year. There have also been some cases of developers publicly discounting new homes, which have fed reports of a potential housing downturn.
However, with real estate companies snatching up more land at higher prices so far in 2014, it remains to be seen whether the commercial lending restrictions will have an impact on developer confidence or any long-term effect on the industry.