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Lending rate reduction likely to boost property

By Hu Yuanyuan (China Daily)
Updated: 2008-09-17 09:26

A lower lending rate might not bring more wealth to property developers, but it will boost industry confidence, analysts said.

The central bank cut the benchmark lending rate by 0.27 of a percentage point to 7.2 percent from Tuesday, the first time it has reduced the rate since 2002.

"The policy is not likely to deliver a material impact on property developers, as most banks still take a restrained approach on loans to real estate firms," Chris Brooke, president and CEO of CB Richard Ellis (China), said.

"But the rate change is sending a positive sign, showing the government's efforts to maintain the rapid growth of the economy. In that sense, it is good for the property sector," he said.

Jeffrey Lin, general manager of BA Consulting, a Beijing-based real estate service provider, agreed.

"I can't see any direct benefit to property developers but the move will help to boost consumer confidence," Lin said.

Economist Yi Xianrong said the lower rate could have a limited influence on the property sector, as short-term lenders will be the biggest beneficiaries.

Loans due to mature within six months will be reduced by 0.36 percent, but three- to five-year loans and above will be cut by 0.18 and 0.09 percent respectively.

Property developers' loans typically range from three to five years, while homebuyers usually take out mortgages for longer periods.

But some developers have welcomed the rate change as the market undergoes a correction and many are strapped for cash.

Zhang Weike, general manager of Beijing Xinji Investment Co Ltd, said the lower lending rate will reduce operating costs for property developers and ease cash-flow pressure.

"We're actually considering taking on some new projects soon," he said.

Property prices in 70 major Chinese cities rose 5.3 percent year-on-year in August, compared with 7 percent in July, the National Development and Reform Commission said Tuesday. The growth rate has dropped for eight months in a row this year, showing signs of nationwide decline after a two-year surge.

New residential property prices rose 6.2 percent year-on-year in August, the NDRC said.

Cities where property price growth exceeded 10 percent year-on-year last month included Haikou, Yinchuan and Beijing, with growth rates of 16.5 percent, 12.4 percent and 11.7 percent, respectively.

Prices of homes for resale rose 3.9 percent year-on-year in August, 2.1 percentage points below the July rate. Non-residential property prices grew 4 percent last month, down 0.9 percentage points from July.