Data from a research firm showed that Chinese banks have moved to raise their mortgage costs for the first time since 2021 to address shrinking margins caused by a downturn in the real estate market and China’s economy stagnating.
In November, the average mortgage price in 42 major cities in China climbed to 3.08% from a record low of 3.05% in the previous month. The hike was the first time since October 2021, as seen in the data from Data Motion International Trading Pte, a Singaporean firm.
None has expected the change as the Chinese housing market has been on a continuous decline for three years now and has since wreaked havoc on the nation’s economy. Even after Beijing rolled out a stimulus plan to boost sales in late September, housing prices continue deteriorating.
A record low-interest margin has put a huge constraint on the Central Bank’s ability to reduce interest rates, many banks were pressured to boost their revenue as a result. Next year’s forecast aims to push lenders further to address the weakening loan rates.
Shen Meng, Director at Chanson & Co. investment bank from Beijing, remarked that the rate hike is unjustifiable from a market perspective, as property sales are likely to remain stagnant in the foreseeable future.
The regulators are suspected to be behind the mortgage rate hike, as a ploy to create some buffer for the next and potentially bigger rate cut next year, Shen added. While this may affect the housing market, it may not necessarily hinder the recent recovery.
In late September, China’s central bank lowered the cost of as much as $5.3 trillion in mortgages for many homeowners to shore up the real estate market. Pan Gongsheng, central bank governor, said that the measures would reduce on average 50 basis points for borrowers and cut their annual interest expense by around CNY 150 billion ($20.6 billion).
In November, 17 out of 42 cities with available data pushed the first-home mortgage rate up, according to numbers from Data Motion, which monitors bank’s local branches across China. Wuhan, Changsha, and Wenzhou saw the biggest push by 20 basis points.
The push was spurred by local branches of the supervisory body under the supervision of the People’s Bank of China, the move was known as the interest rate self-disciplinary mechanism, according to Caixin’s report, with sources from two anonymous bank executives.
The move was aimed at calming a ”price war,” which saw banks competing for clients by curbing mortgage rates and eroding profitability, according to the report.
Banks in China have endured swelling bad loans and margin loss in the past few years, due to the government relying on banks funneling cheap lending to bolster its economy.
In the first three quarters of the year, combined profit among commercial lenders rose by a meager 0.5% to CNY 1.9 trillion, according to official data. At the end of September, total non-performing loans soared to CNY 3.4 trillion, while net interest margin sunk to 1.53%, below the 1.8% profitability threshold.
To address the lender’s profit issue, the central bank has eased the reserve requirement ratio in the last few years to clear out low-cost money. Banks also move to shave off deposit rates to curtail funding costs and are likely to continue the trend in the next few years.
Chinese authorities promised to shore up the capital position of its biggest state-owned bank by utilizing funds from the sale of special sovereign bonds.
