China’s Banks Tightened Lending For Home Mortgages12 May, 2011, 13:35. Posted by Zarathustra
Tags: Banks, People's Bank of China, Real Estate
Despite having series of tightening on the real estate market, it seems that it has never been enough.
Wall Street Journal reported yesterday that some banks in Zhejiang have voluntarily raised the down-payment requirement from the official minimum of 30% to 40%. Some banks in Guangdong has also increased the down-payment requirement for first home purchase according to Xinhua, and banks in Beijing may follow suit.
As the Chinese regulators and the People’s Bank of China tighten monetary policy and credit, one banking officer said home mortgages are no longer a very attractive business. First-home mortgages, for instance, typically charge interest rate of 6.8%, while other loans products such as lending to small-to-medium size companies can charge as high as 12% or more. As the People’s Bank of China raised the reserve requirement ratio 10 times since last year, liquidity is tightened, so banks now prefer to focus on the most profitable types of loans.
It is unclear yet if banks in Beijing and other cities will follow those banks in Zhejiang and Guangdong in raising down-payment requirement, but if this is implemented across China, this will be another big blow to various real estate developers, which are facing declining profit, increasing unsold inventories, and higher amount of debt.