China Real Estate: Banks Increase Mortgage Rates18 October, 2011, 17:22. Posted by Zarathustra
Tags: Banks, Real Estate
Since late last week, news from Chinese media have been saying that China Construction Bank has raised mortgage rates for first-home mortgages in Beijing. Sina confirms that banks in more cities are now increasing interest rates. And now Mingpao says banks in 14 cities have raised mortgages rates.
The latest round of increase in interest rates is happening in Beijing, Shanghai, Guangzhou, Hangzhou and others. While previous increases of mortgage rates have been mostly focusing on second and third home mortgages (i.e. the supposedly speculators), the latest round increases are on first-home mortgages, which means most of these borrowers would be buying a property for the first time.
The increases have been modest. Interest rates have increased by around 5-10% for these mortgages. The benchmark 5-year+ lending rate is currently at 7.05% according to the People’s Bank of China, thus the rise in mortgages rates would increase rates to about 7.4% to 7.76%. Although it does not seem to be a lot, the immediate impact is a instant freeze of the property market according to Mingpao. Property agencies in Shenzhen said transaction on the day immediately after the rates increases have fallen by 90% compared to early this year, and potential buyers are sitting on the sideline.
Thus amid already slowing real estate market and even though the People’s Bank of China has been doing nothing for months, the banking system itself is tightening the screw.