China bank regulator said to plan study of developers

BEIJING: China’s banking regulator plans to review debt levels at some real-estate developers on concern the companies’ borrowings are fuelling excessive gains in property prices, a person familiar with the matter said.

The China Banking Regulatory Commission wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market, the person said, declining to be identified because the plans haven’t been made public.

Some developers have borrowed too much, threatening to cause an increase in delinquent debts should property prices collapse, the person said. China’s home prices rose at the fastest pace in a year in September as government stimulus spending drove a recovery in the world’s third-largest economy.

“Should lending be tightened, the impact on the property market would be huge,” said Liu Xihui, a Shenzhen-based analyst at Ping An Securities Co Restrictions on second mortgages imposed after June 30 “had a big impact” on demand both among property investors and people looking for new homes, he said.

At the end of August, liabilities exceeded 90% of assets at more than 160 developers that have borrowed at least RMB50 million (RM25.05 million) each from banks, the person said. New loans for real-estate development surged 121% from a year earlier in the first half to RMB403.9 billion, according to the People’s Bank of China’s latest quarterly report.

New credits for home purchases more than doubled to RMB479.3 billion in the period. A gauge tracking 24 real estate firms traded in Shanghai has climbed 120% this year, the best-performing group on the benchmark Shanghai Composite Index. The property measure rose 0.2% on Nov 3.

Some banks loosened mortgage down-payment requirements this year to boost market share, and some paid commissions to developers and real estate agents for referring borrowers, the person said. Almost 10,000 mortgages defaulted in the first eight months of 2009, taking the total to 140,000 at the end of August, the person said.

Regulators in Hong Kong, Singapore, Taiwan and India are also trying to control property lending, after rising prices across Asia fuelled concerns that bad debts could spiral. The Reserve Bank of India last week ordered lenders to set aside more funds to cover property loans.

While the CBRC doesn’t have the power to force developers to cut borrowings, it can direct banks to reduce lending to the industry. The regulator will mainly target state-owned companies whose main businesses are outside of real estate, the person said. The CBRC didn’t respond to a faxed request for comment.

China Vanke Co, the nation’s largest developer by market value, raised average apartment prices 26% in September from a year earlier to RMB10,168  per sq m, the company said last month. Prices rose 4% from August.

The price increase outpaced gains in urban disposable incomes, which rose 14.5% to an average RMB15,781 last year, according to the National Bureau of Statistics. Vanke’s third-quarter net income doubled from a year earlier to RMB433 million.

Tomson Group Ltd, after selling just four flats since 2005 in what was dubbed China’s most expensive property project, sold more than 35 apartments in Shanghai’s Tomson Riviera since June, the 21st Century Business Herald reported Oct 29, citing local government data.

“Bubbles exist in some regions, mostly first-tier cities and some second-tier cities, and the bubble in high-end property market is more obvious,” said Bai Hongwei, an analyst at China International Capital Corp. “Banks had a huge role. Without this leverage, the market would basically have no vigour.”

Rapid gains in property prices are “very likely” to disrupt improvements in real estate investment and threaten the economic recovery as the government takes measures to curb the “bubble”, Ba Shusong, a deputy head of financial research at the Development Research Centre, which advises the State Council, said Sept 2.

Rising property prices have pushed up land costs, as developers rushed to secure inventories in anticipation that housing demand would continue to strengthen.

The CBRC’s Shanghai branch in July ordered lenders to obey rules on mortgages for second homes and step up scrutiny of approvals. On Oct 28, the regulator said it plans to tighten rules on personal loans to prevent them from being used for speculation.

China has clamped down on the property market before. The government raised down-payments on second mortgages to 40% and interest rates to 110% of the benchmark on Sept 29, 2007, causing price declines in some cities in 2008.

Banks must “steadfastly” follow policies on second mortgages and make “reasonable” lending plans for the fourth quarter, CBRC chairman Liu Mingkang said in an Oct 21 statement on the regulator’s website. – Bloomberg LP

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