Posted on: Friday, March 18, 2005
China revises loan rules to cool housing boom
By Elaine Kurtenbach
Associated Press
SHANGHAI, China Acting to cool the sizzling property market, China's central bank yesterday tightened mortgage lending rules to raise the cost of borrowing for home loans.
The central bank said banks also could request a minimum down payment on a home of 30 percent of its purchase price, up from 20 percent, in cities where property prices are rising quickly.
The new rules will help banks strengthen risk management while also giving borrowers a "reasonable expectation" of the cost of financing for property purchases, it said.
Deutsche Bank economist Jun Ma said the moves were "modest" efforts to rein in real estate demand, reduce risks for the banking sector and limit speculative demand.
Earlier this week, the government reported that investment in property, factories and other fixed assets rose 24.5 percent for January-February over the same period a year earlier.
The government's target for year-on-year growth in investments in property and other fixed assets this year is 16 percent.
The rebound after a 21.3 percent year-on-year increase in December has raised worries that speculative investments in property and other areas are undermining efforts to slow the economy from its sizzling 9.5 percent growth last year.
Investments in the property sector rose 27 percent to 120 billion yuan ($14.5 billion) in the first two months of this year, according to the National Bureau of Statistics.
"The risk of a resurgence in fixed-asset investment is still evident," top economic planner Ma Kai warned last week, speaking at a news conference during the annual session of China's legislature.
Ma noted that 150,000 new investment projects were launched in 2004, despite a government crackdown on new spending in many industries, with 20,000 starting up in December alone.
Much of that spending found its way into the property market: three-quarters of all bank loans in Shanghai last year were for real estate.
Property prices in Shanghai jumped 10.4 percent year-on-year in the fourth quarter of 2004, according to government figures, making the city one of China's fastest growing property markets.