Home mortgage rates in some Chinese cities decline after climbing for months

Home mortgage rates in some Chinese cities decline recently after climbing for months, which some believe is a signal of easing mortgages after top financial regulators pledged twice in a week to maintain housing market stability and safeguard home buyers’ legitimate rights.

China’s average home mortgage rates for first-time home buyers stood at 5.46 per cent in September, up 23 basis points from the end of last year, and average mortgage rate for second-home buyers stood at 5.83 per cent last month, rising 29 basis points from the end of 2020, according to data from the China Real Estate Information Corporation (CRIC).

While the uptrend remained, some cities have seen easing signs. In Guangzhou, capital of South China’s Guangdong province, mortgage rates offered by branches of major banks including Bank of China, Agricultural Bank of China, Bank of Guangzhou, China Merchants Bank and China Everbright Bank have declined, according to the state-run China Securities Journal, citing industry data.

For instance, mortgage rate for first-time home buyers at the local branches of China Everbright Bank fell by 40 basis point to 5.6 per cent and the rate at the Bank of Guangzhou fell to 5.45 per cent.

In Foshan, a smaller city in Guangdong, mortgage rates offered at branches of China Construction Bank and Agricultural Bank of China fell by 20 basis points, though three major banks maintained mortgage rates unchanged and two banks raised the rates.

Notably, in the first eight months of the year, banks in Guangzhou raised home mortgage rates for both first-time buyers and used home buyers five times in a row, making the city’s mortgage rates the highest among the four tier-one cities.

In addition, “some banks are accelerating granting of mortgage loan to new home buyers, some buyers receiving loans within two months of application,” a Guangzhou-based property brokerage told Yuan Talks.

“For quite a while, banks had tightened mortgage loans, with some banks halting loans to second-hand home buyers, which hindered home purchases by those with real home demand and led to a repaid decline in home transactions and second-hand home prices,” said Li Yujia, chief researcher at the Housing Policy Research Center of Guangdong Province.

“The policy unintentionally hurt those with real housing demand and is against the principle for common-wealth and the top authority’s requirement to prevent one-size-fit-all approach, which will hurt the stability of the housing market,” said Li.

“To solve problems in the housing market, a long-term strategy is needed. To maintain a stable housing market, bank loans must keep up to support reasonable housing demand,” he said.

“The central bank has called for efforts to safeguard home buyers’ legitimate rights. I think home mortgage loans for first-time home buyers and those who sell one house to buy a new one will increase,” he added. “The drop in home mortgage rates in Guangzhou is an important signal.”

The People’s Bank of China (PBOC) said at its third-quarter monetary policy meeting last week that it’s important to “maintain the healthy development of the real estate sector and the lawful rights and interests of residential housing consumers.”

That marks the first time since the first quarter of 2009 the central bank mentioned the real estate market at its quarterly policy meeting. Some believe the statement suggests policymakers are prepared to prevent any contagion in the industry amid signs of distress among highly indebted developers.

Two days later, the PBOC and the China Banking Regulatory Commission (CBIRC) held a meeting to urge financial institutions to work with authorities to safeguard stable and healthy development of the real estate market and protect home buyers’ legitimate right. That marked the second time in a week for the top regulators to make similar statement.

Officials from the Ministry of Housing and Rural-Urban Development and the China Securities Regulatory Commission (CSRC) as well as executives from 24 major national banks attended the meeting.

The PBOC specifically mentioned protecting home buyers’ lawful rights, and that should refer two aspects: home buyers’ rights to get home mortgage loans in a timely way and their rights to have their homes delivered on time, said Yan Yuejin, research director at the E-House China R&D Institute.

“It happens a lot recently that some home buyers can’t get or wait for too long for home mortgage loans after signed home purchase contracts as banks in some regions tighten home mortgage quota,” said Yan.

In addition, many property developers are facing liquidity issues and that lead to some unfinished property projects, Yan said. “Both of the situations hurt home buyers’ lawful rights.”