Shenzhen scraps use of guide prices in mortgage applications to boost homebuyers’ spending power, revive flagging market

Shenzhen is scrapping the use of guide prices as a reference for mortgage applications for lived-in homes in a bid to spur sales, according to local property agents.

Home loans will no longer be pegged to the reference prices that were imposed in February 2021 by the Housing and Construction Bureau of Shenzhen to curb the soaring home prices blighting the market at the time, said several agents and landlords who claimed they had checked with local banks.

Shenzhen became the first mainland Chinese city to publish a reference price list for pre-owned homes in more than 3,500 residential communities to guide property agencies to issue reasonable listing prices and help banks to contain bad-loan risks.

Under the system, if the guide price was lower than the final price agreed for the property, the buyer would get a smaller loan and therefore have to fork out a larger down payment.

The cooling measure had an immediate effect. Second-hand home transactions dropped by more than half to 40,299 in 2021, and plunged again to 20,000 in 2022, the lowest level in 20 years, according to a research report released by property broker Leyoujia, based in the city.

Although the reference prices themselves will remain in place, banks will no longer be required to base their mortgage loan calculations on them.

Chinese state-run newspaper the Securities Times first reported the change late on Thursday, citing a bank employee. Although no official announcement had been made, the news quickly circulated online and sparked discussions on social media platforms before it was deleted from the Securities Times news website.

A local agent told the Post on Friday that the guide prices remain, but the mortgage can now be adjusted according to valuation by the banks and the actual transaction price.

The agent used the example of a client applying for a loan to buy a home in Baoan district at 65,000 yuan (US$9,436) per square metre but tagged with a guide price of 60,000 yuan per square metre. If the mortgage is calculated based on the transaction price, the client can get borrow an extra 300,000 yuan.

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“It doesn’t mean that the guide prices will be completely removed, but it means they may no longer be seen as a reference standard for loans application,” said Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institution.

The move is likely to provide a much-needed boost to the market as it increases purchasing power, said Yan.

For example, a homebuyer applying for a mortgage on a home costing 5 million yuan but tagged as 4.5 million yuan as a guide price would be entitled to borrow 3.15 million yuan, leaving them to cough up a down payment of 1.85 million yuan. But if the mortgage is granted without referring to the guide price, the down payment will be 1.5 million yuan – 20 per cent lower than before – and the home loan will be 3.5 million yuan, said Yan.

The move comes after Shenzhen’s lived-in home transactions plunged to a nine-month low of 1,391 in January. Though the number rebounded to 3,949 units in March, according to data compiled by Centaline Property Agency, it is still a long way below the level before guide prices were introduced.

It is the latest big Chinese city to relax its stringent curbs in an attempt to revive the stuttering housing market and bring some relief to the economy after three years of Covid-19 restrictions.

A week ago Beijing’s housing authority proposed a pilot programme to assist families with multiple children and those working in the southwestern district of Fangshan to buy homes there.

Additional reporting by Pearl Liu and Iris Ouyang