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Analysts refute home loan worries, stress stable home prices
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21:37, July 23, 2009

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Shou Zhenwei, a 28-year-old working at a state-owned company in Beijing, felt disappointed when he was mulling over buying a home this week; it was taken by another homebuyer at a price 50,000 yuan (7,319 U.S. dollars) higher than his offer.


The secondhand, two-bedroom home Shou and his fiancee strived to buy was located in Chongwenmen area, in southern downtown Beijing within the Second Ring Road.

The 73-square-meter apartment cost the homebuyer 1.4 million yuan. That translated to 23 years of Shou's annual income without spending a penny.

Shou is only one of the millions of Chinese rushing to buy a home this year, as they think home prices had hit the bottom at the start of the year.

The average secondhand home price near Chongwenmen area rose from 15,280 yuan per square meter in the first quarter of this year to 16,857 yuan per sq m in the second quarter, up 10.3 percent quarter-on-quarter, according to the latest figures from Beijing-based 5i5j Real Estate Service Co.

Government data showed that secondhand home prices topped 10,189 yuan per sq m in Beijing from June 15 to 30, the first time in history the price surpassed 10,000 yuan mark.

The upbeat property market in the Chongwenmen area and Beijing was only the epitome of national development.

Chinese home prices in big cities started to pick up from the one-year lows point in February and home purchases reached a record high in recent months, boosted by the pent-up demand of last year and the government's measures to shore up the industry.

Prices of new homes in 70 large and medium-sized cities including Beijing, Shanghai and others increased 0.8 percent in June from May, while secondhand homes in the 70 cities rose 1.1 percent in June from May, the National Bureau of Statistics data showed.

This was the fourth consecutive month that home prices in China had climbed month-on-month.

"We planned to use 1 million yuan to buy a two-bedroom apartment within walkable distance to subways in Beijing last year, but we had to raise our price to 1.4 million yuan now," Shou said.


Along with the revival of the Chinese property market, commercial lenders also boosted lending to record high, pushing new credit in the first half to a record 7.3 trillion yuan, far exceeding the full-year target of 5 trillion yuan, as the government looked to a moderately easy monetary policy to bolster the economic recovery.

The total amount of individual mortgage loans nationwide jumped to 466.18 billion yuan in the first half amid rapid credit expansion, up 150 percent over the figure a year earlier.

Shou, who has only been working for two years, has to borrow money from parents and relatives for the down payment to buy the home and pay the rest of the money through a 30-year bank individual mortgage plan.

The Chinese lending spike sparked concerns about whether this would trigger possible rise in bad loans -- like the subprime mortgage crisis in the United States years earlier, but analysts said potential problems were modest.

Ou Minggang, director of the International Finance Research Center of China Foreign Affairs University, told Xinhua Thursday that there were no securities backed with subprime mortgages held by financial institutions in China and the mortgage rate was not adjustable for borrowers as in the United States.

Some homebuyers could pay a zero down payment to get a house before the subprime mortgage crisis in the United States, while this would not happen in China. When home price began to fall in 2006, refinancing had become more difficult for some homebuyers as the adjustable-rate mortgages began to reset at higher rates, so mortgage delinquencies surged and those securities backed with subprime mortgages suffered big losses, Ou added.

"Many Chinese commercial lenders and the banking regulator stressed loan risk control, especially after the subprime mortgage crisis," he said.

Commercial banks in China saw declines in both bad loans and their ratio to total outstanding loans in the first half, as the industry regulator and lenders endeavored to improve loan quality.

The non-performing loans (NPLs) totaled 518.13 billion yuan in China, down 42.2 billion yuan from the beginning of this year and the NPL ratio was 1.77 percent, down 0.65 percentage point, the China Banking Regulatory Commission (CBRC) announced last week.

Liu Mingkang, Chairman of the CBRC, last week called on banks to strengthen risk control and optimize credit structure to prevent possible financial risks amid a surge of bank loans during a speech at an industry conference held in Beijing.

Liu urged banks to lift the provision coverage ratio above 150 percent this year to prevent possible risks. As of the end of June, the provision coverage ratio of commercial lenders in China was 134.3 percent, which was 10.4 percentage points higher than the end of March.

Qin Rui, a senior analyst with 5i5j, told Xinhua Thursday that China could not rule out the possibility that loopholes might exist in the process of home mortgage lending, but most banks took a very tough stance on this issue.

Although Shou had tried several banks, the answer he got was the same. He had to pay at least 30 percent of the home price as the down payment and present documents from his employer to prove his income in order to get the mortgage plan approved from the bank.


"After we pay the mortgage in the future, my fiancee and I have to scrimp and save to return the money back to my relatives and fulfill the bank's mortgage plan. I would have around 2,000 yuan left from my monthly salary to pay other bills," Shou said, adding that he was afraid if he did not decide to buy a home quickly, others would vie for them and push the price to even higher levels.

Liu Xiaoguang, former vice president of Beijing Real Estate Association, said that a sharp rise in home prices was not conducive to the healthy development of the property industry.

"The industry regulator needs to take measures to keep the home-price hike in line with the pace of citizens' income rise. The property sector is still in the process of stabilization, so developers should not be over-optimistic about the market," added Liu, the General Manager of Beijing Capital Group, a state-owned property, city infrastructure conglomerate.

Gao Haiyan, an expert with Shenzhen Academy of Social Sciences, told Xinhua that when a full-fledged economy recovery had not been established, the surge in home prices would add pressure to homebuyers, while an accelerated lending expansion might lead to future bad loans.

Source: Xinhua

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