District helping homebuyers

Buyers of existing housing in Shanghai's Xuhui District are in for a pleasant surprise:Starting a week from today,they will pay a third of the current rate to have their mortgages guaranteed.

In a second recent step designed to bolster and regularize the district's trade in older dwellings,the government-backed Xuhui Real Estate Exchange is taking over the role of guarantor.

Until now,real estate agencies have provided banks with the guarantees they demand when issuing mortgages on previously lived-in apartments.(People buying new apartments do not need guarantors;if they default on their mortgages,the banks are confident they can recover their loans by seizing and selling the property.)

One problem with the old system,in the eyes of the House and Land Administrative Bureau of Xuhui District,was that not all the real estate agencies had the funds to make good on failed mortgages.

"Many agencies aren't powerful enough,"Zhu Jinsong,an official of the Xuhui Real Estate Exchange,said yesterday."But they guaranteed loans worth several million yuan."

If banks could not get their money back,they would stop writing mortgages -and that would hamper a real estate market Shanghai wants to encourage.

Another problem was that some unscrupulous agents took clients'money to act as guarantors and could not be found when it was time to fill in the bank papers.

Only last month,the Xuhui exchange set up a company called Baijiahui to fight other real estate abuses.Officials explained they wanted to group approved agencies under a recognizable brand and take business from fraudsters who sell a single apartment to several buyers or dispose of a property to which they did not have title.

In the case of mortgages,the Xuhui house and land bureau has made no public announcement,but beginning next Saturday,its real estate exchange will have a monopoly of the guarantee business.Private agencies and banks are being informed of the policy,Zhu said.

A prime beneficiary will be homebuyers.As a nonprofit entity,the Xuhui exchange is able to give them a break.

For example,private agencies currently charge 4,800yuan (US$580)to guarantee a 20-year mortgage worth 200,000yuan.The exchange will ask for only 1,600yuan,according to Zhu.

The exchange's risks are limited.Commercial banks say the default rate on home mortgages in Shang-hai is only 1percent to 2percent.