Home Lending Expected to Tighten Further in Major Cities Around China

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Bank lending for home purchases is expected to tighten further in major cities around China as the central government continues to push for strong property market controls.

China Securities Journal reports that personal home loan rates have continued to rise in a slew of cities around China, including Beijing, Guangzhou, Hangzhou, Nanchang and Shenzhen, while banks themselves are becoming far more cautious about extending credit.

All four of the big state-owned banks announced at the start of February that first home loan rates in Guangzhou would rise from 10% to 15% above the benchmark rate,.

Data from Rong360 further indicates that home loan rates have risen above the benchmark rate in many other major cities around China.

In Beijing the big four state owned banks charge a rate 5% above the benchmark for first home loans, while in the Shenzhen area 13 out of 21 banks charge a premium of 10%.

In the Shanghai area 13 out of 30 banks charge home loan rates above the benchmark, while in some second-tier cities such as Wuhan and Nanjing the premium against the benchmark has risen to 10 – 20%.

Lian Ping, chief economist with the Bank of Communications, expects home loan rates in first-tier and hot spot second tier cities to rise to as high as around 15% above the benchmark, yet given the inelastic nature of housing demand, sees regulators capping increases within a reasonable threshold.

Other members of industry expect lending rates to be driven higher by rising capital costs in tandem with the pressure created by the return of irregular bank assets to their balance sheets in the wake of China’s shadow banking crackdown.

In addition to raising home loan rates Chinese banks are also expected to impose tighter curbs on the volume of real-estate related lending, after the China Banking Regulatory Commission signalled a focus on containing household leverage levels and suppressing real estate bubbles.

“At present personal home loans at higher rates can still garner approval, yet our head bank regularly refuses approvals for development loans despite the rate hikes,” said one executive at a big state-owned bank in Ningbo to China Securities Journal.

According to the executive this year’s lending curbs are extremely tight, and approvals for credit to real estate developers are subject to intense scrutiny despite their willingness to accept rates that are over 30% above the benchmark.

 

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