Rate hike 'little impact' on housing

08:51, February 10, 2011      

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China's latest interest rate hike will have little impact on the housing market, according to industry observers.

On Tuesday, the People's Bank of China raised interest rates for the third time since October in a widely expected move to curb inflation.

Effective from yesterday, the one-year benchmark lending rate rose by 25 basis points to 6.06 percent.

Correspondingly, mortgage rates for loans extended by the country's public housing fund also rose by between 20 to 25 basis points, according to a statement yesterday from the Ministry of Housing and Urban-Rural Development.

"The latest interest rate increase will only have a minor influence on mortgage payers but is probably a signal from central government of more rate increases to come during the rest of the year," said Song Huiyong, research director at Shanghai Centaline Property Consultants Ltd, operator of the city's largest brokerage chain.

"The recent tightening measures - in particular ending the scheme offering a 15-percent interest rate discount to first-time home buyers at commercial banks - will have much larger impact on home buyers, in terms of monthly payments," Song said.

In the case of a 20-year, 1 million-yuan (US$151,860) loan for first-time home buyers extended by commercial banks, the monthly payment will be increased by around 117 yuan after the latest hike. However, the impact of 15-percent interest rate discount scheme ending is almost equivalent to an interest rate increase of 100 basis points, according to Centaline calculations.

Almost all Chinese banks have stopped offering discounts to first-time home buyers as lenders tighten mortgages amid a lower loan quota and stricter housing policy.

"This is the latest in a series of moves by the central government to control price increases in the residential market in particular, and to tame inflation in general," said Michael Cole, research director for East China operation at Colliers International, a major real estate services provider.

"While residential real estate prices have yet to go down in response to any of the government's efforts to date, the increasing number of measures can be expected to reduce investor confidence."

China increased the downpayment requirement for second-home buyers to 60 percent from 50 percent on January 26 and launched a trial property tax in municipalities of Shanghai and Chongqing the next day, after earlier measures failed to bring down home prices.

Source: Shanghai Daily
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