Mainland further tightens rules on loans in move against speculators

Yvonne Liu
23 April 2010

The mainland government is continuing to tighten the screws on second-home mortgage approvals as it tries to damp speculative demand.

The Shanghai Securities News quoted China Banking Regulatory Commission director Yang Jiacai as saying that banks will identify whether the buyer is acquiring a second home by basing on the number of the flats the family owns and not on the number of properties that the buyer owns individually.

Previously, the banks did not have a standard rule on identifying second-home buyers when approving mortgages. Investors could apply for mortgage plans with lower down payments and could access interest rates normally offered to first-time buyers even if their spouses or family members already owned properties.

“Some investors would also buy flats in their baby’s name,” a property agent said.

Investors who have paid up mortgages for their first homes also used to be treated as first-time buyers when acquiring a second home, enjoying the benefits of lower down payments and interest rates.

However, under the new rules, these customers will be treated as second-home buyers.

Last week, the State Council ordered banks to raise minimum mortgage rates on second homes to 1.1 times the central bank’s benchmark lending rate instead of 80 per cent of the benchmark lending rate. The down payment on second homes was also raised to 50 per cent from 40 per cent.

A property agent said some investors who bought flats in the past two months but had not yet secured bank finance might be caught out by the new rules.

Yang said the CBRC has released guidelines to the banks in approving property loans to the developers.

Under the new guidelines, developers which delay construction so that they can benefit from short-term speculation will not get a new property loan from the banks.

Developers which hoard property to drive up prices or use loans to pay for the land price will also not be able to get a new property loan.

Wang Ren, an analyst at CCB International Securities, said property sales are expected to decline in the next few weeks following the government’s new policies on second homes.

“The policy will squeeze out some of the demand. And other home-seekers will postpone their buying plans as they are worried that the government will announce more cooling measures,” he said.

According to the website of the Beijing local government, property sales in the capital have continued to fall since the central government released the new measures last week.

Only 291 homes were sold on Tuesday, compared with 483 transactions on April 15.

Wang believes property prices have peaked.

“A sharp fall in property prices is unlikely to happen,” he said. “Property prices are expected to drop 10 to 15 per cent by the end of the year. But prices would be still slightly higher than they were at the beginning of this year.”

SJS Markets expects the new policies will lead to a decline in property prices from next month. The prices will drop up to 5 per cent by the end of the year.

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