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October 1, 2009

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Banks call a halt to mortgage incentives

CHINA'S biggest five state-owned banks will stop offering commissions to agents who recruit household mortgage clients until the end of the year because of burgeoning business in home financing, according to industry sources.

Individual mortgages are the most lucrative sector in retail banking, and banks have been keen to woo customers, sometimes resorting to gifts and other incentives.

"We've already made our yearly loan quota, leaving us no need to give agents incentives to help us pitch clients," said a Bank of Communications loan officer.

Previously, banks offered commissions of up to 1.5 percent of the transaction's value to agents.

"Higher risk amid surging prices is another concern," the loan officer said.

Individual mortgages in Shanghai started to pick up in March as home buyers dashed to purchase properties amid fears that prices would rise further.

China's real estate market recovered this year amid looser credit and tax cuts on home purchases. The volume and prices of property transactions rose after a slump last year.

In the first eight months, the volume of homes sold nationwide jumped 45 percent year on year, while sales value surged 70 percent.

In Shanghai, new individual mortgage loans soared to a record 17.02 billion yuan (US$2.5 billion) in August, up 16.72 billion yuan over a year ago.

Some banks have tightened lending for purchases of second homes constructed before the 1990s, said Cao Liguo, a property agent in Shanghai.

Regulators have warned banks to strictly follow the tighter measures imposed on second-home mortgages to cool property speculation.

In late July, the Shanghai Bureau of the China Banking Regulatory Commission emphasized that banks must adhere to a rule requiring 40 percent down payments on second-home mortgages.

A 20 percent down payment is generally required for first-time home buyers.

In a 2007 drive to cool the real estate market, regulators instituted the 40 percent down payment rule and required lenders to charge a rate at least 10 percentage points higher on purchases of second homes.

However, many banks began ignoring the rules when the property market lost steam last year.


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