Shanghai's public housing fund center quietly rolled out more preferential policies for home buyers seeking mortgage loans in order not to kindle direct competition with commercial banks.

Buyers of three new developments and all second-hand homes in Pudong New Area were the first batch of beneficiaries from the new policy. It allows them to apply for an additional loan of 1,000 yuan (US$125) per square meter to decorate.

Take a 100-square-meter large apartment for example, after a maximum loan of 300,000 yuan offered by the current program, buyers can apply for an additional 100,000 yuan to decorate.

However, home buyers did not know about the additional loan until three developers advertised apartments at a housing exhibition held during the May holiday.

Feng Yun, an official with the public housing fund center, said the new policy is a trial limited to Pudong at this stage. He declined to reveal more details such as whether it will be applied to other developments across the city.

"Though we have received a lot of applications from developers, we want to get feedback from customers first," Feng said.

The new policy was not given any official publicity. Real estate agencies are expected to tell buyers about it when they apply for mortgage loans from the center, according to Feng.

The housing fund center said in March that it plans to significantly raise the maximum loan limit for home buyers.

But afterwards it was quietly urged by local commercial lenders not to do that, industry insiders said.

Both parties have seen a significant drop in mortgages since last June as housing sales slowed. Both banks and the housing fund center want to revive the once-lucrative business.

Typical home buyers in Shanghai borrow money from both the public housing fund and commercial banks to finance purchases.

They prefer borrowing money from the public housing fund as loans from this source are charged about 1 percentage point lower than those from banks.

The gap widened after the central bank raised the benchmark lending rates last month, pushing housing fund center loans 0.18 percentage points higher, compared to the 0.27 point increase of commercial bank loans.

The city's housing fund program requires employees to pay a portion of their salaries to the fund on a monthly basis.

(Shanghai Daily May 10, 2006)