News Analysis: Resumed First-Home Mortgage Rate Discounts to Boost Demand

BEIJING, April 12 (Xinhua) -- In a move believed to be conducive to lifting demand for first homes, banks in China's major cities have resumed offering mortgage rate discounts to first-home buyers after canceling such discounts over a year ago.

Large commercial banks have been gradually easing their restrictions on granting mortgage rate discounts for first-home buyers, according to property sales offices and agents in major cities, including Beijing, Shanghai and Guangzhou.

Liu Chao, an account manager with a Beijing branch of Agricultural Bank of China, said the bank can now grant a certain degree of mortgage rate discounts according to the credit ratings of loan applicants.

"Some customers with high credit ratings at our bank can get a 15-percent discount on the benchmark mortgage rate for their first-home purchases," Liu said.

Shanghai and Sanya branches of Bank of China, the country's fourth largest bank, are able to grant a 10-percent discount from the benchmark rate for first-home buyers with relatively good credit.

China Construction Bank, another of China's five largest state-owned banks, will also allow first-home buyers to apply for a discount of 10 percent.

Zhang Dawei, a chief analyst with Centaline Property, said it is true that getting mortgage loans is becoming easier than in past months and banks are lowering the discount qualification threshold.

These discounts come more than one year after major banks decided to scrap them starting February 2011.

Prior to 2010, it was common practice for Chinese banks to offer first-home buyers a 30-percent discount off the benchmark mortgage rate, which largely fueled the country's property price surges.

China has imposed a raft of measures since 2010 to cool the runaway market, including higher down payments, differentiated loan rates, a ban on third-home purchases, property-tax trials and the construction of low-income housing.

The discount was gradually reduced to 15 percent in mid-2010, and then canceled in early 2011. In October, major banks even began to charge lending rates higher than the benchmark.

The banks' moves to resume rate discounts appear amid consistent month-on-month price drops in major cities due to the country's strict regulations on the property market.

In February, new home prices dropped in 45 cities of the 70 major Chinese cities monitored by the National Bureau of Statistics (NBS), and 21 cities recorded no changes month-on-month.

The central government stopped several local governments from easing property controls last month, including Shanghai's loosening of its home-purchase limit and a similar move in the eastern city of Wuhu, as these moves triggered policy-easing speculation.

Premier Wen Jiabao said during his government work report delivered in early March at the Fifth Session of the 11th National People's Congress that China will continue to regulate the real estate market to bring down property prices to a reasonable level.

"China will strictly implement and gradually improve policies for discouraging speculative or investment-driven housing demand," said Wen.

China's major banks vowed in early March to continue the implementation of differentiated housing loan rates by offering reasonable rates on mortgages for first home purchases.

Analysts said the resurgence of mortgage rate discounts would greatly lower the costs for many purchasing their first homes, and might even push some to make the final decision to buy.

Zhang said that the discounted rates can contribute to reducing the burden on first-home buyers, who are usually identified in China as "home buyers of inelastic demands."

The current property market is very sensitive to price changes at a time when government curbs are set to be strictly implemented, he said.

"Consequently, chances for both prices and transaction volumes to rise at the same time are slim," according to Zhang.