Bloomberg News

Chinese Banks Increase Mortgage Rates as Property Prices Decline

October 17, 2011

Oct. 17 (Bloomberg) -- At least two Chinese banks increased interest rates on mortgages for first homes, after property prices posted their first monthly decline in a year.

China Construction Bank Corp., the nation’s second-biggest by market value, increased rates in Beijing to 1.05 times the central bank’s benchmark lending rate, a press officer said today, declining to be identified in line with bank policy. China Everbright Co. raised its first-home mortgage rate in Shanghai to the same level, a press officer said, confirming a report in Economic Information Daily. The benchmark for loans of more than five years is 7.05 percent.

Tighter lending for first homes could “freeze” the market, slowing the economy, Alan Jin, a property analyst at Mizuho Asia Securities Ltd. in Hong Kong, said by phone. New loans in September were the lowest in almost two years after the central bank raised borrowing costs five times in 12 months and boosted reserve requirements to rein in inflation and deflate an asset bubble.

Home prices fell 0.03 percent last month, according to SouFun Holdings Ltd., after the government raised the minimum down payment for second-home mortgages and cities imposed restrictions to curb speculation.

Industrial and Commercial Bank of China Ltd., the nation’s biggest, Bank of China Ltd., Bank of Communications Ltd. have so far refrained from raising rates on first-home loans, spokespeople said. Agricultural Bank of China Ltd. declined to comment.

Small Businesses

China ordered banks to boost lending to small businesses last week and pledged tax cuts after the collapse of some manufacturers in Wenzhou, Zhejiang province, which could further squeeze funding for homebuyers. Interest rates shouldn’t exceed 1.3 times the central bank’s benchmark, the city’s government said this month.

Banks charged interest rates higher than the benchmark for 61 percent of new loans in June, almost 12 percentage points higher than in January, according to the People’s Bank of China. The one-year lending rate is 6.56 percent.

“It’s normal for banks to” increase rates because “mortgage rates are low if compared with other loans such as for small and medium-sized companies” and “other banks will probably follow suit,” Sun Peng, a Beijing-based analyst at Bank of China Ltd., said by phone.

--Stephanie Tong, Bloomberg News, with assistance from Bonnie Cao in Shanghai. Editors: Nathaniel Espino, Linus Chua

To contact Bloomberg News staff for this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net; Bloomberg News in Beijing at dzhang14@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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