Banks told to act more quickly on home loans

Commercial banks should set mortgage rates at "reasonable" levels and grant housing loans more quickly, especially for first-time buyers, the People's Bank of China says.

During a meeting with executives from 15 commercial banks on May 12, the PBOC emphasized that the banks should improve their housing-finance services and give priority to loans for first-time homebuyers while keeping a closer eye on the associated risks.

"The central bank is aiming to maintain economic stability. The move signals that China is fine-tuning its macroeconomic policy rather than adopting strong stimulus policies," says Yin Zhongli, a financial researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.

He adds that whether this so-called "window guidance" by the central bank will avert a plunge in the housing market depends on whether commercial banks implement the policy effectively.

Among banks attending the meeting were Agricultural Bank of China Ltd, China Construction Bank Corp, Industrial and Commercial Bank of China Ltd, Bank of China Ltd and Bank of Communications Ltd.

The property market has been cooling down. The latest evidence of the downtrend came on May 13 from the National Bureau of Statistics, which said that housing investment grew 16.6 percent year-on-year in the first four months of 2014, a decline of 0.2 percentage point from the growth rate of the first quarter.

In the first four months, new housing starts stood at 311.84 million square meters, down 24.5 percent year-on-year, the NBS said.

The slowdown in the housing market has already affected downstream industries such as cement, iron and steel.

Analysts say tight mortgage conditions are constraining the market. Banks have been raising mortgage rates for first-time buyers or holding off on approvals amid tighter liquidity. Banks have also been reacting to their rising exposure to the property sector in 2013.

The weighted average mortgage interest rate hit 6.7 percent in March, up 0.17 percentage point from December.

Nearly 90 percent of mortgages offered to first-time buyers were at a premium of 5 to 10 percent above the PBOC's benchmark mortgage rates. For example, the rate is 6.55 percent for five-year loans or longer.

The rising cost of capital and shrinking margins on mortgages have been discouraging banks from providing housing loans. Some prospective buyers have been waiting "several months" for action on their mortgage applications, says Lu Zhengwei, chief economist at Industrial Bank Co Ltd.

"The central bank's new policy is targeted at making it easier for first-time homebuyers to get loans, rather than stabilizing the property market, although it's good news for developers," Lu says.

"Instead of relaxing its policy on property development loans, the central bank chose a safer policy, which will help avoid the problem of building homes that do not sell."

Reuters contributed to this story.

jiangxueqing@chinadaily.com.cn

(China Daily Africa Weekly 05/16/2014 page23)