Chinese Banks Seen Discounting Mortgage Rates, Survey Shows

Jul 23, 2014 5:42 am ET

(Update with closing share price in fifth paragraph.)

July 23 (Bloomberg) -- Chinese banks will probably offer discounted mortgage rates to their clients in the second half of 2014 as demand in the country’s housing market weakens, according to a Bloomberg News survey.

Banks will resume preferential mortgage rates, according to 74 percent of analysts and economists in a survey conducted from July 14 to July 17. Fifty-six percent forecast banks will lower minimum down payments, while 59 percent said they expected the central bank to ease its mortgage restrictions. A total of 29 economists and analysts responded to the survey.

New home sales slumped 9.2 percent in the first half of the year from a year earlier amid tighter credit, forcing developers including China Vanke Co. to cut prices since March. The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages, a sign that developers’ price cuts and incentives alone won’t boost a slumping market and economy.

“If mortgage restrictions really loosen, it removes the biggest factor restricting home sales,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “That will provide very good support to property stocks.”

Fewer Mortgages

A gauge tracking Shanghai-listed developers closed 0.4 percent higher, trimming this year’s decline to 0.3 percent. China Vanke, the nation’s biggest developer, gained 2.3 percent to 9.39 yuan in Shenzhen trading.

Tighter bank lending and expectations for further price declines are the main factors restraining market demand, according to Centaline Group, the parent of China’s biggest real estate agency. A relaxation of home-purchase restrictions is yet to show any substantial impact, with sales in the seven cities that had eased the rules falling by a combined 11 percent in June from May, it said in an e-mailed report on July 18.

Chinese banks trimmed lending to developers and homebuyers in the first quarter as authorities kept liquidity tight to curb shadow financing. New mortgages dropped 3.7 percent to 651.2 billion yuan ($105 billion) in the first half of this year from a year earlier, according to the National Bureau of Statistics.

The Chinese cities of Nanning, Hohhot and Jinan have announced a relaxation of local home-purchase restrictions, while another seven cities including Chengdu and Xiamen have loosened the implementation of such curbs without announcement, according to property data provider and consultancy China Real Estate Information Corp. The moves unwind policies enacted under former Premier Wen Jiabao to prevent a housing bubble.

More Easing

For the last four years, China enacted restrictions to cool its housing market as prices soared. The government increased the minimum down-payment requirement for second homes nationally to 60 percent in 2011 after suspending third-home mortgages in cities with excessive price gains in 2010. The first-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou raised the deposit for second properties to 70 percent last year after prices jumped.

Seventy-six percent of respondents said they expect China will probably roll out more measures to boost the property market after mainland cities have started to loosen their home purchase restrictions, the survey showed.

‘Downside Risk’

“We could see more removal of home purchase restrictions and an easing of Hukou policies, especially in cities with oversupply problems,” Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in an e-mail response to the survey. Hukou are urban household registrations that give access to social services including health care and pensions.

In Haikou, the capital city of the southern island province of Hainan, a number of property development sales offices were told by the local housing regulator that a limit on the number of homes a person could buy had been scrapped, Sina.com reported, without saying where it got the information.

Premier Li Keqiang’s government has brought forward railway spending, reduced reserve requirements for some lenders and cut taxes to protect an annual economic growth goal of about 7.5 percent that’s under threat from the plunge in property construction and weaker home-price gains.

Weak market sentiment, sluggish sales and rising inventory will continue to weigh on the property industry that stands as the “biggest downside risk” to economic growth, UBS AG economists led by Hong Kong-based Wang Tao wrote in a July 16 report.

--With assistance from Jacob Gu in Shanghai and Moxy Ying in Hong Kong.