China Tightens Loan Reins to Curb Property Prices

Monday, 19 Apr 2010 07:17 AM

 

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China has moved to further curb real estate speculation by telling banks they will be allowed to refuse additional mortgages to buyers who own two or more properties.

The move comes soon after the government last week raised the minimum down payment for second home purchases as authorities try to rein in the market with the economy growing at a blistering pace.

Under the new rules, announced at the weekend, banks can also refuse loans to people who cannot prove they have lived and paid taxes for at least one year in the city where they intend to buy, the State Council, or cabinet, said.

Last week the State Council raised the minimum down payment for second home purchases to 50 percent and set a minimum 30 percent deposit on first homes bigger than 970 square feet.

The latest moves highlight growing concern in China that the property market is overheating, after prices in major cities rose 11.7 percent year-on-year last month, the fastest since the survey was widened to 70 cities in July 2005.

The State Council also renewed a pledge last week to rein in runaway prices by increasing the supply of land for construction, accelerating the building of affordable housing and cracking down on speculative activity.

But Royal Bank of Canada senior analyst Brian Jackson said the measures would not be as effective as higher interest rates.

"I have very strong doubts that is going to be enough to get the results they want in terms of slowing down the property market and eventually they will have to use blunter instruments," Jackson told AFP.

China is trying various ways to prevent the growth of asset bubbles as the nation's economy surges — it grew 11.9 percent in the further three months of the year — and keep a lid on inflation.

Beijing has been clamping down on bank lending which has been blamed for fueling speculative investment in the property sector.

Policymakers have raised bank reserve ratios twice this year — effectively limiting the amount banks can lend — and increased interest rates on benchmark three-month and one-year Treasury bills.

Analysts have forecast interest rate hikes as early as this month as well as a loosening of exchange rate policy, which has effectively pegged the yuan to the dollar since mid-2008.

© AFP 2014

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