Policy leaves room for interpretation
It's been a frustrating time for Zhu Qian. After nearly a month of waiting, her mortgage agent at China Construction Bank said she would have to pay a deposit of 40 percent and that the interest rate will be raised to 1.1 times the benchmark one-year lending rate.
"As the apartment will be the first one under my name but the second under my family's, I was hoping to escape the new rule," Zhu said.
After the central bank asked commercial banks to raise mortgage deposits to 40 percent for second homes on September 27, Chinese and foreign banks had to work out rules in accordance with the policy.
What constituted a second home was the focus of discussion.
Of the banks that have released rules on individual mortgages, only China Construction Bank considers the second-home purchase on an individual rather than family basis. Other Chinese and foreign banks are considering second-home purchases on an individual basis.
Meanwhile, most banks stipulate that if a debtor has paid off the mortgage on a first property, they can still enjoy the preferential policy when they buy a second home.
Bank of Communications said the down payment for a third home will increase to 45 percent.
Despite the restrained policy on individual mortgages, banks are still keen to develop the sector.
"With a non-performing loan rate of just 0.55 percent, individual mortgages are the primary business we would like to develop," said Zhou Xiao, general manager of the retail credit department at Bank of Communications.
Some banks, however, are worried the new policy will cut profit margins.
Experts said that of the loans offered by commercial banks, mortgages are the largest contributor of profits and usually have a comparatively lower bad debt rate.
"This could be the reason why the central bank has left room for interpretation on the second property," said an employee in the mortgage department at the Shenzhen Development Bank.
"What we will do next is strengthen our marketing for first-home buyers and select quality customers looking to buy a second one. But we'll be careful about those buying third properties," said the employee. "We won't treat all cases the same."
(China Daily 11/06/2007 page15)
