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Two Hong Kong-based banks closed their first deals with the Beijing-based property tycoon Pan Shiyi to provide mortgage service to his luxury housing project. Does this signal the beginning for overseas banks to fight for their market share in the Chinese mortgage business? On August 31, the Bank of East Asia and the Wing Hang Bank signed a CONTRACT WITH Pan Shiyi, a well known real estate developer, to offer him mortgage loans more favorable than those he would receive from any Chinese banks. Generally speaking, Chinese banks charge an annual interest rate of 5.04 percent for apartment loans extending over five years, with a term of eight to 20 years. The interest rate for loans to offices and commercial shops with a tem of six to 10 years is 5.76 percent. In contrast, the annual interest rate Pan Shiyi got from the Bank of East Asia and the Wing Hang Bank for his SOHO apartments and offices is 2.5-3 percent, with a term of eight to 30 years. In addition, the loans are made in U.S. dollars. Reliable sources told Beijing Review that the loans are the most favorable offered by any foreign bank for business development in Beijing. Given China's strict foreign exchange control, the loans for SOHO apartments and offices can only be extended to Pan's customers who are foreigners, residents from Hong Kong, Taiwan and Macao, Sino-foreign joint ventures and foreign companies registered abroad. Despite the restrictions on buyers, the deal Pan struck raised eyebrows among real estate developers in China. Pan got the loan at a time when Chinese commercial banks have been ordered by the government to tighten up loans to real estate developers. On June 13, the People's Bank of China, China's central bank, issued the Notice on Strengthening the Management of Real Estate Loans (hereinafter referred to as Document No.121), which bars Chinese commercial banks from extending any mortgage loans to a housing project unless the main structure of the project is complete. A real estate developer who spoke on condition of anonymity told Beijing Review that Document No.121 actually means that real estate developers have to wait a year more than they are used to in order to get mortgage loans from commercial banks. Mortgage loans help buyers pay for houses or apartments in installments. A real estate developer would find it difficult to sell projects if their potential buyers cannot get mortgage loans easily from banks. The central bank issued Document No.121 after it found that many banks had granted too many loans to real estate developers whose housing projects were only half complete, creating bad loan risks. However, the document "made it almost impossible for us to do business." said the anonymous developer. Pan's SOHO project is located in the Jianguomenwai area, part of Beijing's central business district. The total construction area of the project is more than 700,000 square meters, comprising 18 apartment buildings, two office buildings and four SOHO small office buildings. From October to May next year, the SOHO project will have finished 220,000 square meters of space ready for commercial use. So far, more than 70 customers have applied for $37.5 million worth of mortgage loans from SOHO's foreign banks. Backed by the two foreign banks, the No.10 building of the SOHO project saw its sales reach 160 million yuan($19.2 million) immediately after construction began. This means customers can borrow mortgage loans from the two banks even while the main structure of the building is far from complete. For commercial banks, mortgage loans to individual customers often yield
handsome profits. Such loans are much safer than those extended to industrial
or commercial enterprises. The Bank of East Asia extends HK$1.5 Billion
($190 million) worth of mortgage loans a year. Its contract with Pan Shiyi
was the 20th of its kind. Chu xiaolu, senior manager of the Beijing Branch
of the Bank of East Asia, said the bank's mortgage loans are somewhat
risky because the loans are extended before housing projects come into
physical being. "But we understand that the SOHO project in Jianguomenwai
has made great pre-sales-much of the space has been sold already and a
lot of cash has been recouped," Chu said. Is the market for mortgage loans big? Beijing Review learned that only 10 percent of the customers of all upmarket apartments or villas in Beijing are foreigners. Among other things, this indicates that foreign buyers may not have received favorable loans. On the part of foreign banks, it is a well-established fact that they focus too much on extending loans to Sino-foreign joint ventures, an already competitive market. Therefore, banks like the Bank of East Asia have had to explore real estate projects as new areas of development. A number of foreign banks believe that foreigners have a high demand for both high-end and low-end homes in Beijing. A senior banker who asked not to be named told Beijing Review that risks could be controlled so long as the rates of mortgage loans are reasonably made. "On the whole, the demand is strong and sustainable in Beijing, as people from all over the nation or the world come to this city," said the banker. Chu Xiaolu of the Bank of East Asia agreed, saying, "Although the vacancy rate in Beijing is 16 percent, we cannot say that the city's real estate market is overheated." He added that speculators account for less than 15 percent of all buyers in the real estate market in Beijing. |
