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China Real Estate Market - Mortgage/Home Loans

By Xiannian Ye
 

This article is from realtor.org. Please contact the author with any questions.

The housing mortgage system currently in China has just started. Several cities have enacted legislation and regulations to provide guidelines for mortgage processing on real property. For instance, in Guangzhou, the local government published regulations handling mortgages and required domestic mortgage lender to be licensed by a central bank.

The maximum period of home loan repayment is 30 years. Prospective homebuyers are normally required to pay down 20 percent of the purchase price out of their own savings. It's not unusual to see buyers to put down as much as one-third or half of the cost of a new home in cash mainly thanks to the high saving rate (about 45%) and limited financing resources.

The biggest provider of home mortgage loans in China is the China Construction Bank (CCB). The housing loans made by the four state-owned commercial banks were RMB355.6 billion (about U.S. $43 billion) in 1999 according to a report. Of the total loans, RMB217.2 billion (about U.S. $26.3 billion) went to real estate developers and RMB 126 billion (U.S. $15.2 billion) to the mortgage loan sector accounting for about 35% of the country's overall real estate loan amount at the end of 1999.17 From January to November of 2000, the home mortgage loan amount was RMB 296 billion (about U.S. $36 billion). Since the market is so new that most homebuyers do not have significant collateral to back up a loan. Most banks require borrowers to have a guarantor. Foreign lenders are not allowed into home loan area at this time. But this will change after China's accession to the WTO.

In addition to bank loans, city workers may also borrow money from the housing provident funds (Zufang Gongjijing) if their companies or work units are participants of the funds. The fund allows employees to contribute four to eight percent of their salaries into the fund. The employers then pay a matching five percent of payroll. The interest rate in the provident funds is usually lower than those offered by banks. By September of 2000, 67.77 million employees nationwide have joined housing provident funds.

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