no money down
Although the central bank left its benchmark mortgage lending rate unchanged at 4.9 percent, banks have increased the rates they charge on mortgages to as high as 6 percent and, in some cases, have stopped giving out mortgages altogether because they have used up their quotas set by regulators.
The People’s Bank of China wants to lower the share of mortgage lending to 30 percent of new loans, which should influence new demand for housing.
“Unlike 10 years ago, when most Chinese households made a 50 to 70 percent down payment to buy a new apartment, more than 80 percent of borrowers in the past two years have put down 30 percent or less. With reduced mortgage funding availability, we believe it is unlikely that households will be able to finance their purchase through savings,” states the TS Lombard report.
So far, the slowdown in larger cities has been offset by more activity in smaller cities, which haven’t implemented as many tightening measures.
“Overall revenues and profits plunged in Tier 1 cities, with the slowdown concentrated primarily in the Beijing and Shanghai regions. Hiring stagnated, while cash ?ow worsened across the board,” the China Beige Book says.
However, TS Lombard expects smaller cities to follow the bigger cities with more restrictive measures for property buying, which will ultimately lead to a decline in housing transactions, if not prices outright.
“Property sales will decelerate notably in [the second half of 2017], with the monthly number of new residential housing transactions set to drop by 10 percent year-on-year, compared with a year-on-year rise of 8.3 percent in May.”
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