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Beijing's Credulous Home Buyers
Summary:Developers in the capital, where home buyers must pay up at least 30% of the value of the property, are winning customers by offering to defer that down payment.

By Zhou Yalin (周亚霖)
Issue 568, May 7
Property, Page 34
Translated by Tang Xiangyang
Original article: [Chinese]

Now seems like a good time to be a homebuyer in Beijing.

As competition between developers gets fiercer, the companies have found a new way of marketing: pitching mortgage packages that allow home buyers to make the down payment in installments over a period of several months. 

“The deal will be settled several months later (when the down payment has been paid in full). Who knows what will happen then?” said one senior property insustry executive, on the condition of anonymity. 

In the capital’s Daxing District, one property company allows home buyers to pay two thirds of the down payment , then sign a contract with a bank promising that they will pay the remainder before the construction is complete.

“Banks are grabbing customers. They have very flexible policies now,” said one  sales woman.

Another developer has even cut the size of the “first down payment” to 5% of the home price for those first-home buyers. The remaining 25% - the largest available mortgages are for 70% of the home’s value - should be paid in installments within nine months.

For second-home buyers, the “first down payment” is 10%. The sales woman told the EO that the developer would take care of the remaining 20%; banks would accept the loan application as soon as the 30% down payment was received and home-buyers would begin to pay the mortgage nine months later when the development is complete.  

The delayed down payments seem to be helping to seal deals. Salesmen claimed that over 1,000 people had paid deposits for a project with only 600 more apartments available. The developer then raised the price per square meter from 11,500 yuan to 12,000 yuan.

The Economic Observer learned that this is the developer’s only project in Beijing that accepts delays to down payments.

However, is it possible for banks to accept loan applications before they have received the down payment in full?

A senior employee at China Construction Bank told the EO that banks would accept applications only when they received the down payments. The bank added that the “contract” between home buyers and the bank doesn’t exist at all.

What about developers paying the down payments on behalf of home buyers?

One high executive at a property company said that it’s nothing but a lie.

“It would be pretty risky for any developer to do so,” he said, on condition of anonymity. He argued that developers used the promotions as a tool to attract home buyers who might be able to put up the full down payment nine months later.

He said that home buyers are usually poorly informed about the moment at which banks accept their mortgage applications, when they’re approved and when the loans are issued - the home buyers only care about when they need to start paying the mortgage, and that’s why they believe developers who claim to be making the down payments on their behalf.

Another important point is the penalties that home buyers may be asked to pay for failing to settle down payments in full within the agreed period.

According to data from the Home Link, one of China’s leading property service providers, last year a total of 180,00 new homes and second-hand apartments were sold, representing a 37% drop from the number of transactions in 2010. Meanwhile, the proportion of Beijing homes acquired by residents of other cities fell to 12% from 40%, thanks to the local government’s efforts to restrict buyers from outside the capital. 


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