Bank pioneers fixed rate mortgage
By Wang Xu
China Everbright Bank has been given the go-ahead to offer fixed-rate
mortgages to home buyers in Shanghai and Beijing, the nation's first
lender to offer such products.
In the pilot programme, the Beijing-based lender set the interest
rate at 5.94 per cent for 5-year maturities, and 6.18 per cent for
10-year maturities, slightly higher that the current floating interest
rate, adjustable by year or even month. Local residents can apply
for the loans directly from the property developer.
The benchmark floating rate for 5-year mortgages is 6.12 per cent.
Lenders may offer first-time homebuyers up to 10 per cent discounts,
lowering the rate to 5.51 per cent.
"The fixed-rate mortgage will appeal to customers who prefer
stability," the bank said in a statement, adding it will also
help home buyers hedge against possible hikes in interest rates.
Pudong Development Bank and China Construction Bank have also applied
to regulators for permission to offer fixed-rate loans.
According to an online survey conducted by Insight CN, 41.9 per
cent of the 990 respondents are in favour of fixed-rates, as they
reduce possible risk.
Analysts say the practice may benefit home buyers in the short term
as interest rates are expected to rise in the coming few years.
China's interest rates have remained at a low level for a decade.
"Further interest rate rises are possible this year, as one
way to stabilize housing prices. Unlike Shanghai, property prices
in Shenzhen and Beijing have continued to rise even after the introduction
of the macrocontrol measures," said Yang Hanliang, an analyst
from Centaline (China) Property Consultants Ltd.
The People's Bank of China, the central bank, raised the benchmark
interest rate from 5.31 to 6.12 per cent last March in a bid to
rein in investment in some overheated sectors including steel, cement
The National Development and Reform Commission, the nation's top
economic planner, predicted earlier that housing sales will grow
20 per cent in 2006, compared with a 30 per cent gain in 2005. The
commission also said any rebound in the property market was "unrealistic"
in the next two years.
Although the introduction of the fixed-rates will appeal to applicants
for mortgages, industry insiders say they will offer little benefit
to the city's housing market, since most home buyers still expect
further cutbacks in prices this year.
"Price still dominates what's going to happen in the market
next," said Wu Yonggang, an analyst with Shanghai-based Guotai
and Jun'an Securities Co.
Shanghai's property market began to slip from last June, when a
series of austerity measures worked to kick speculators out of the
game, with sales figures falling simultaneously with prices.
Last July, aggregate transactions in the residential sector plummeted
to 778,000 square metres, around one-third of the average level