China Mortgage Rate Hikes Could Continue: Analysts

     BEIJING (MNI) - Mortgage rates in China may continue to edge higher with

money supply expected to maintain its "tight and balanced" status amid the

government's deleveraging campaign, according to analysts interviewed by MNI.

     With the Chinese government showing no signs of loosening controls on the

property sector, recent mortgage rate hikes have evoked doubts about the

government's claim that it wants to help low-income home buyers by clamping down

on surging housing prices across the country.

     The Chinese press has reported that some banks in Beijing have raised their

mortgage rate to 15% higher than the benchmark interest rate for first-time home

buyers. But Beijing News reported Tuesday that most banks have maintained their

mortgage rates at the same level as the benchmark interest rate, with only China

Minsheng Bank and China Guangfa Bank raising their rates to 10% above the

benchmark for first-time home buyers.

     A representative at China Guangfa Bank contacted by MNI confirmed that the

rate is 10% above prime -- an annualized rate of 5.39% -- for first-time buyers

of both new houses and second-hand homes.

     To buy a second house on the secondary market, however, the Guangfa rate is

15% above the benchmark -- still below the 20% premium Beijing News said was

being charged by Industrial and Commercial Bank of China, Agricultural Bank of

China, Bank of China, Bank of Communications, Industrial Bank, Beijing Bank and

China Everbright Bank.

     "Since the start of this year, mortgage rates have been increasing," Lai

Qin, a researcher at the research department of E-house, a Shanghai-based

property information and service provider, said in an interview with MNI.

     He said the government's controls on the property sector, along with

tightening money supply, climbing interbank borrowing costs, the deleveraging

campaign and greater financial risk controls have all contributed to rising

mortgage rates.

     According to a report by Rong 360, a financial technology company which

also sells a variety of loans to consumers, the national average mortgage rate

in July for first-time home buyers was 4.99%, 1.02 times the benchmark interest

rate and representing 2.25% month-on-month growth. It was 12.38% higher than the

4.44% in the same period last year.

     For second-home purchases, the average mortgage rate was 5.47% in July,

compared with 5.39% last July, the report said. Out of the 533 banks Rong 360

monitored in 35 cities, only four banks were offering mortgage rates for

second-home purchasers at the same level as the benchmark interest rate, while

422 banks had mortgage rates set at 10% above the benchmark, 10 banks had rates

at 15% above the benchmark, 67 banks had raised mortgages rates to 20% above the

benchmark, and 10 had raised rates to 30% above the benchmark.

     Lai, of E-house, said the rise in mortgage rates could be regarded as

another supplementary control on the sizzling property market, although he said

the rises were "more of a market reaction" because banks have either had to

reduce the discounted rates they previously offered or increase mortgage rates

to balance the rising costs of money amid the tight liquidity environment.

     He said the government's strict restrictions on credit used for speculative

purposes in the property sector have led to reduced mortgage loan quotas for

banks, and the supply drop of mortgages naturally has led to an increase in

mortgage rates.

     "To some extent, it has helped cool down the property market," Lai told

MNI. "But for first-home buyers ... their home purchasing costs have increased,

which is against China's original goal to support them in buying houses. But

it's a longer-term effect, and the influence is smaller than the other housing

control policies" such as housing purchase quotas.

     Yan Yuejin, director of the research department at E-house, on the other

hand, told MNI that mortgage hikes are "not related to controls on the property

market." But he pointed out that restrictions on bank loans going to real estate

could be considered macro-control measures.

     Bank representatives at China Merchants Bank and Citic Bank told MNI that

"not many" customers have been inquiring about mortgages in Beijing, where home

sales have dropped significantly amid tightened policies. However, that

sentiment seems to contradict the new loans data released Tuesday by the

People's Bank of China. New loans in July reached CNY825.5 billion, among which

mortgages comprised 55%, much higher than the 31% reported in June.

     Lai told MNI that the property market cooldown is mainly in Tier-1 and

Tier-2 cities, while Tier-3 and Tier-4 city property markets -- except regions

around the Beijing area -- are still "heating up," and thus contributing to the

mortgage interest rate hikes. 

     "Compared with the previous discounted rates, the current mortgage interest

rates are at a relatively high level," Lai told MNI. "But the actual rate is not

high, so there's room for growth."

     He said that given the rising capital costs for banks, it's likely mortgage

rates will continue to rise, especially for second-home buyers. "It's because

the growth rate of mortgage rates for first homes is higher than that for second

homes," Lai said. "And China gives more support for first-home buyers."

     As to China's future policy direction in the property sector, Yan said the

government has recently stressed "stability" and "continuity" of policies, so he

predicts no big major tightening moves will occur.

     "But if market transactions become terrible, policy loosening is also

possible," Yan said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

[TOPICS: M$A$$$,M$Q$$$,MT$$$$,M$$FI$]