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August 19, 2010

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Dilemma over budget homes

IT'S a dilemma for many Shanghai budget home buyers - they are qualified to buy homes at prices lower than market levels as the family earn little, but that's the same reason the bank shows them the door.

Potential buyers, whose mortgage applications are declined, are left feeling depressed and annoyed after going through the application process, which can take months, trying to own a relatively decent home at an affordable price.

The city government is offering thousands of budget homes to low-income families as a part of ambitious housing policy. The city plans to build 20 million square meters, or 300,000 units, of budget homes by 2012.

For Li Jian, 57, the dream was just one step away, but still unreachable.

On Tuesday Li took 60,000 yuan (US$8,832), all the family's savings plus some money she had borrowed, to pay a down payment on her chosen 300,000 yuan apartment.

However, she was told by the Shanghai branch of the China Construction Bank, the sole lender offering loans at present, that the down payment had doubled.

For Li, it's a major burden as she is the sole bread earner for her family - her husband and son are both ill at home.

"All the efforts have been done in vain," said Li, who is considering giving up the home.

The Shanghai branch of China Construction Bank said yesterday that the minimum down payment requirement on budget homes was 20 percent, the same for general first-home buyers but the bank's decision to double that requirement for Li was justified.

"It's not that we increased the minimum down payment requirement on budget homes," said an official. "It's that some budget home applicants who only pay a 20-percent down payment just can't afford the future monthly re-payments."

The lower the down payment, the more the applicants needs to borrow and the more they need to pay back each month.

Construction Bank said it has already lowered the mortgage threshold for budget home buyers considering their conditions.

Generally, mortgage applicants can repay the loan with at most 50 percent of their monthly salary.

For budget home applicants, the bank sets a minimum 500 yuan per head living cost for mortgage applicants. So they can pay all their salary, less just 500 yuan a month.

The bank said it made the change to make it easier for budget home buyers to access home loans, considering their relatively low income.

To solve the dilemma, the Shanghai government is considering increasing the household financial assets cap on budget home applicants to enable more residents into the program. The cap on financial assets of 70,000 yuan per head for a core family will be expanded to 90,000 yuan while the individual monthly income of 2,300 yuan will be expanded to 2,900 yuan.


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