Given the jump in home prices in first-tier cities in recent months, loans for down payments are in great demand. Property agencies and P2P platforms have become a driving force by offering loans for down payments, though some real estate agencies in Beijing and Shanghai were recently forced to stop the practice. Experts noted that this type of loan can make it easier for buyers to purchase property, but also adds the risk of additional leverage to the domestic real estate market. Consequently, Chinese authorities are set to roll out rules to regulate the practice.
An agent at the Lianjia real estate agency in Beijing's Chaoyang district sorts a thick pile of documents on Tuesday provided by his clients for their applications for loans to cover down payments.
"More and more homebuyers have come to apply for the loans in recent months, but an internal notice arrived Monday night that said we have to stop the loan service for down payments in Beijing," said the agent, surnamed Wang.
"It is quite simple to apply for this kind of loan. An identification card, household registration or residency permit and proof of salary for six months are all that are needed," he said.
The real estate agency was offering homebuyers loans of up to 1 million yuan ($153,806) for 70 percent of their down payment, according to a flier Wang was handing out.
The loans had an interest rate of 13 percent with repayment terms that range from three to 12 months. Lianjia also charged borrowers a 2 percent fee on the loan principal.
For the sake of comparison, the average mortgage rate for first-time homebuyers in Beijing was 4.25 percent in February, according to data from Beijing-headquartered industry platform rong360.com.
The flier promised that borrowers could receive the funds in three to five days after the application was approved.
Wang said he had no idea if the agency would be able to resume its lending business in the future.
"Our company made the decision suddenly, and we do not know what will be next," he told the Global Times on Tuesday.
Media reports said last week that Lianjia had suspended its financial services for home purchases in Shanghai after being investigated by local authorities. Also, some other realty agencies have halted their loan businesses.
"Our company's loan service was halted the other day," a property agent from realtor 5i5j.com Corp in Beijing told the Global Times on Tuesday. The agent refused to be identified.
Experts said the suspension signaled that authorities were planning to roll out new regulations to put an end to the practice of down payment loans.
Property agencies and online peer-to-peer (P2P) platforms have become the main driving force for down payment loans, which could support homebuyers, but also bring the hidden risk of leverage to mortgages, experts said.
