China raises mortgage interest

On Friday, the People’s Bank of China raised mortgage interest rate and hiked minimum down payment needed for purchasing investment and commercial properties. In a joint announcement with China Banking Regulatory Commission, the PBoC said

It is clear that the rapid rise in real estate prices is due to irrational factors and the market risks for commercial lenders are increasing.

Just two weeks earlier, Wu Xiaoling, the vice governor of the PBoC was quoted by China Securities Journal saying that the central bank would only keep a close watch on asset prices and not enact measures in response to their movements. Spoke too soon eh, buddy? We guess that’s why Wu was only the “vice” governor.

Anyhow, effective immediately, mortgage rate for both commercial and investment residential properties (non-primary residence) must be at least 110 percent of the bench mark one year lending rate. That rate currently sits at 7.29 percent, so the new floor for mortgage rate is 8.02 percent. In addition, down payment required for investment properties is now 40 percent, up from the old 30 percent. Commercial properties’ upfront payment is 50 percent, and the buyer must repay the balance within 10 years.

The new rules are a part of Beijing’s continuing effort, now some three years and counting, to rein in runaway real estate prices. Things haven’t exactly gone as planned, housing prices in pretty much every major metro market are at a record high at the moment. Shanghai’s market for example, is up between 400 to 500 percent from where it stood in late 2000, the trough of the last housing cycle that began in 1996.

Jay Sheng is Shanghaiist's Business Editor. Email tips, news and gossip about business in Shanghai and China to biz at shanghaiist.com.