Some domestic banks have stopped offering a 15 percent discount from the benchmark mortgage-lending rate for first-time house buyers, and analysts said Wednesday it would put pressure on real estate developers and force them to lower prices to boost sales.

 

"Cutting prices to win sales, which happened in April and May amid shrinking sales, may occur again in the upcoming months, as a result of the change in the loan interest rate," Hui Jianqiang, a senior researcher at the E-house China Research and Development Institute based in Shanghai, told the Global Times Wednesday. 

 

A number of domestic banks - including Industrial & Commercial Bank of China, China Construction Bank and Agricultural Bank of China - have stopped offering 15 percent discounts to first-time house buyers, China Securities Journal reported Wednesday.

 

Some banks lowered the discount from 15 percent to 10 percent, while others offered no discount at all or even charged 5 to 10 percent more than the benchmark mortgage-lending rate, the newspaper said.

 

Analysts said it is a trend for banks to raise house loan interest rates.

 

"Raising the rate is more of a market action by banks, who now prefer to invest in business areas with more policy support, rather than the real estate sector," Hui told the Global Times.

 

China has implemented various measures since 2010 to cool off its overheated real estate sector, including restricting home purchases by non-local residents in major cities and raising down payments for multiple-home buyers.

 

Real estate developers are now experiencing harder times and more restricted capital flows. A report by China International Capital Corp said that some 100 billion yuan ($15.8 billion) in loans from real estate investment trust companies will have to be paid back in the third quarter. 

 

Only a few listed developers are free from cash flow concerns, and many developers will find it harder to get loans in the fourth quarter, said the report. Also, home buyers will have more difficulties in applying for mortgages.

 

However, Yang Shaofeng, general manager of Beijing Lianda Sifang Real Estate Consultancy, said he believed the change in interest rates will not have such a big impact.

 

"To offset the pressure brought by changes in loan interest rates, some developers may have to cut prices," Yang told the Global Times. "But the cuts won't be as deep as those in the first half of this year when interest and home purchase curbs significantly affected the entire sector," he said.

 

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