Banks reduce second home loan issuance

By Tu Lei

Local banks have begun to cut back on preferential measures for loans given to buyers of second homes, signaling a possible tightening of home loans nationwide.

A realty agency in Shanghai has received a bank's notice that beginning November 1, the interest rate on mortgages for second–home loans will increase 10 percent, reported the China Economic Times yesterday.

An employee surnamed Le from Shanghai Real Estate Purchase & Exchange confirmed that the Bank of China and the Bank of Shanghai have required them to obey the long-standing, but heretofore unenforced rule.

Banks in cities including Shanghai, Guangzhou, Shenzhen, Nanjing and Shenyang are reported to have tightened lending policies as well.

In June, the China Banking Regulatory Commission announced that all banks must follow the 40 percent down payment requirement, and mortgages must have interest rates that are at least 1.1 times the benchmark lending rate announced by the People's Bank of China.

The rule was first announced in September 2007. However, banks would still set interest rates on loans as they saw fit.

In the past, the banks have had different policies toward second-home loans, said Li Wenjie, general manager of Northern China for Centaline Property Agency.

Shang Jiaowei, a researcher from the Chinese Academy of Social Sciences, said that the banks may have already met their goals for the year and are therefore cutting back on second-home loans.

As of the end of August this year, the value of housing loans issued soared by an astounding 800 billion yuan ($117.16 billion) over the same period of 2008, according to the 21st Century Business Herald.

But the enforcement situation varies in different parts of the country.

Zhao Haibo, an employee from 5i5j in Beijing, a leading realty agency, said the company has not yet received the notice to raise the interest rate yet.

And experts fear tightened policies could discourage buyers.

According to a brokerage, a 20-year, 500,000-yuan ($73,227) loan costs an additional 665 yuan ($97) monthly, 159,800 yuan ($23,403) in total, when the interest rate rises in accordance with regulations.

"Policy tightening will definitely decrease the sales volume," Yin Kunhua, president of the Shanghai Weston Real Estate Management Institute, said Wednesday.

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