Rethinking second-home purchases

Li Ming, a 31-year-old company executive in Beijing, was sleepless for two straight nights. To buy or not to buy? Whether to proceed with his plan to make a home purchase has made him uneasy these days.

Li had barely collected 300,000 yuan for the down payment on a two-bedroom apartment located beside Beijing's East Fifth Ring Road, which is a 25-minute drive to the capital's central business district (CBD) area.

However, a piece of recent news made Li's home purchase plans a harder choice.

In August, Liu Mingkang, chairman of the China Banking Regulatory Commission, said at a forum that all banks should be stricter about mortgages on the purchases of second homes.

Because China's property market has been sluggish since the end of 2007, the mortgage policy on the purchase of a second home had been relaxed at the end of last year to stimulate a stagnant market.

Now second-home mortgages require a 40 percent down payment and 1.1 times the benchmark mortgage rate .

Banks, which consider individual mortgages as their high-quality loans, used to give buyers of second homes the same favorable mortgage rates enjoyed by first-home buyers.

But now, since the policy tightened up, Li, who already has a residence in Beijing's Changping district, has to pay another 100,000 yuan for the down payment on a second home. And his monthly mortgage pay might also increase by over 900 yuan due to the interest rate hike.

What makes Li even more undecided is that after a five-month increase in property prices, he now considers the market's prospects questionable.

Statistics from the Beijing Real Estate Transaction website showed that 15 new residential buildings were open for sale in the last week of August.

But what makes the opening unusual is that several buildings, mostly in the suburbs, have lowered their prices by 5 percent to 7 percent or are offering other types of discounts. This had not happened during the previous five months.

Meanwhile, sales for future delivery apartments in August stood at 12,117 units, down 5.63 percent from the previous month, according to the website.

But the figure is still 204.52 percent higher than the same period last year, the website reported.

The average property price in Beijing stood at 14,825 yuan per sq m, up 42 percent from January.

Guo Yi, director of a Yahoo Real Estate service provider, said though the price of a number of new residential buildings experienced a dip or stagnation, the overall property market in Beijing is still on an upward track.

"The strong rebound in the first half of the year brought property developers ample cash, so they are not likely to cut the price even if the transactions decrease," Guo said.

"But the stricter implementation of the second-house mortgage policy does have a far-reaching influence over the market, especially for those investment-oriented buyers. The price hike will be much lower in the coming months," he said.

Some industry insiders said property prices in Beijing might have peaked in August, and that the continuous rise in property prices will lead to another market adjustment soon.

"The property price might rise further in coming months, but a lower rate could occur largely due to the law of inertia," said Huang Xiqing, general manager of Beijing Wanion Investment Co.

"And I don't think that the transactions in September and October, which are usually the hot seasons for property sales, will see an obvious sales increase from August," Huang said.

In fact, some property developers now are becoming more cautious in pricing their products.

Zhan Xiangmei, a sales manager with Little Universe, a residential project located along Beijing's southwestern Fourth Ring Road, said his firm hasn't yet decided on the unit price, even though the project will open for sale in October.

"The pricing strategy partly hinges on the market situation at that time," Zhan said.

"But as the total amount of our apartments is only around 500 units, we believe the overall market's impact on us will be limited," he said.

Another project in the capital's CBD area plans to increase its unit price by a mere 200 yuan this time when launching another building this month, compared to a 3,000 yuan price hike in August.

For Wang Wencheng, a researcher with the China National Economy Research Institute, property developers should be quick to launch projects ahead of a possible adjustment.

"As the useful life for the government's favorable policy on the real estate sector is only one year, the tightening policy will have an impact on property sales and transactions, as the limit comes due by the end of the year," Wang said.

(China Daily 09/14/2009 page10)