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REPEAT: China Mortgage Rate Hikes Could Continue: Analysts

Repeats Story Initially Transmitted at 10:55 GMT Aug 17/06:55 EST Aug 17
     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

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