Home sales in China are slowing down due to longer mortgage approval times as Beijing seeks to calm growth

By Pearl Liu pearl.liu@scmp.com

/ https://www.scmp.com/business/china-business/article/3140568/home-sales-china-are-slowing-down-due-longer-mortgage?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3140568 |

July 14, 2021 9:53 AM SGT

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China's government is trying to slow down red hot home sales by tightening up mortgage practices, which is leading to delays in loan approvals of as long as 108 days in some cities.

Anna Li sold her home in Jinhua, Zhejiang Province at the beginning of April for around 2 million yuan (US$309,000). She received a down payment of 800,000 yuan immediately, but the rest was subject to payment from the buyer once the mortgage was settled.

"My plan was to sell the old home and use that money for a larger home," said Li. "But due to a long delay my plans have been ruined as the home I wanted to buy has been snapped up by another buyer - I've already waited almost three months, what can I do but wait longer?"

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China's April home prices soar at breakneck pace

A slowdown in home sales is likely good news for Beijing, which is keen for measured growth in China's economy after the pandemic but wants to avoid any overheating and spillover effects from expansionary US monetary and fiscal policy. Chinese policymakers are also anxious to avoid housing affordability issues spilling over into potential social instability.

"We will keep the prices of land and housing, as well as market expectations stable," Premier Li Keqiang said in his annual work report to China's legislature in Beijing in March. "We will address prominent housing issues in large cities [and] make every effort to address the housing difficulties faced by our people, especially new urban residents and young people."

Although no specific measures have been announced by Beijing recently, according to Beike Research Institute the average wait time for mortgage approval in 72 major cities in June was 50 days, a third longer than a year ago. Dongguan and Zhongshan have the longest pending periods at 108 days while in major cities such as Shanghai, the average approval period is 92 days.

That compares with an average mortgage approval time In Hong Kong of less than a month.

Guangzhou property market hit by double whammy of tightened policies

"It is very tough to broker a deal right now as homeowners do not want to sell to people paying with a mortgage due to anticipated delays," said Martin Zhang with Shuntian Real Estate Agency in Zhongshan. "But where can I find so many deep-pocketed buyers?"

The agent said that soaring mortgage costs, driven up in part by tighter monetary policy in China, has further dampened the appetite of potential homebuyers. The average interest rate for first-time buyers in 72 cities monitored by Beike Research Institute in June was 5.52 per cent, 26 basis points higher than the same period a year ago.

"A buyer now needs to pay some 400,000 yuan more to buy a 3 million yuan home in Zhongshan, and many are hoping that sellers can lower prices a bit," said Zhang. "But most sellers are holding fast and I've only got three or four deals done each month recently, compared with nine deals in better times."

Among the 50 cities that Beike monitors, total lived-in home transactions plunged by one fifth in June. Meanwhile, lived-in home prices, although higher, inched up only 0.2 per cent in June from the previous month, much slower than 1.6 per cent growth in March.

Shanghai's hottest commodity is pre-owned flats

By the end of the first quarter 2021, individual mortgage transactions amounted to 35.67 trillion yuan, 14.5 per cent higher than at the end of 2020. But that increase compares with 14. 6 per cent in the fourth quarter last year and 15.7 per cent in the third quarter.

One member of staff who works in the mortgage department of a branch of the Bank of China in Tianjin, told the South China Morning Post that they were now only receiving a small quota of mortgages to deal with this year, and applications are being dealt with in chronological order. The person, who declined to be named as they are not authorised to speak to the media, added that all cases will be settled, it is just that they have "slowed down".

The central government and top financial regulators will also want to prevent any chance of a housing market collapse, such as the one that took place in Japan in the late 1980s.

"Those individual investors who want to participate in trading [high-risk products] are taking a gamble. They are set to suffer losses, just like those who believe property prices will never fall. In the end, they will pay a big price," Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said at the Lujiazui Forum in Shanghai in June.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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