Commercial banks in Shanghai are rushing to lower their mortgage lending interest rates for genuine homebuyers in a bid to minimize the impact of Saturday's rate rise.

 

Genuine homebuyers, or those purchasing an apartment for the first time, have become precious resources for banks at a time when its most profitable mortgage lending business is shrinking as the government escalates its efforts to clamp down on excessive speculation.

 

The government has shown great resolve to dampen speculative activities, widely considered to have contributed greatly to the surge in property prices in some cities, taking them to levels that fewer and fewer people can afford.

 

In the latest move, the China Banking Regulatory Commission issued a nine-point directive last week requiring lenders and other financial institutions to tighten their mortgage lending policies toward risky customers including potential speculators and property developers. It threatened not only to publicly expose the transgressors, but also to force them to suspend business.

 

Genuine homebuyers are fast becoming a resource that nearly all commercial lenders are vying for.

 

China's central bank raised the one-year benchmark deposit and lending rates last weekend by 0.27 of a percentage point while approving commercial lenders to lower the interest rate for individual mortgage lending by a maximum of 15 percent from the benchmark rate.

 

Only a 10 percent reduction had previously been permitted.

 

To attract customers, the Industrial and Commercial Bank of China, the country's largest lender, took the lead to give first homebuyers the 15 percent discount on their mortgage lending interest rate. It has issued the new loans policy to its branches.

 

An official with the Beijing branch of the ICBC confirmed yesterday that it had given first-time homebuyers a 15 percent discount. But an ICBC employee in Shanghai said the branch in the city was still offering the 10 percent reduction.

 

The local branch of Bank of China has also begun offering the 15 percent discount to those buying their first or second apartment.

 

"We have restrictions on people who intend to buy a second-hand unit, including its location, the year it was built and its area," a bank official said yesterday.

 

"But we generally offer a 15 percent discount to the interest rate to new buyers," she added.

 

"Since the State Council issued the six-point decree, turnover on the property market has been falling, which directly led to a shrinking mortgage loan business for banks," said an official with the local branch of the Agricultural Bank of China.

 

"Now every bank is scrambling to attract customers, who will use a higher interest rate to ward them off," said the official who didn't reveal his name.

 

Industry sources said they expected other banks would follow the 15 percent reduction move.

 

But despite the increasing discount, homebuyers still need to pay higher interest every month. A customer who borrowed 300,000 yuan (US$37,500) on a 20-year term would have to pay an extra 10.8 yuan (US$1.35) each month, as a result of the higher interest rate.

 

A few banks in Beijing, including the local branches of the Agricultural Bank of China and China Construction Bank, are ready to launch fixed interest rate mortgage lending, eradicating the risks along with the authorities' decision to raise the interest rate.

 

According to the local branch of central bank, individual mortgage loans have slowed down in the past three months.

 

For the rest of 2006 there will be no substantial growth.

 

(China Daily August 23, 2006)