China tightens home-loan guidance, reaffirms downpayment ratio

BEIJING: China said it will step up guidance on property lending and seek to counter speculative capital arriving from abroad amid mounting risks of asset-price bubbles in the world’s third-largest economy.

Government agencies will increase monitoring of loan flows to prevent funds illegally entering the property market and so- called “hot money” from affecting China’s markets, the State Council said on Jan 10 in a statement posted on the government’s website. China’s cabinet reaffirmed a 40% down-payment ratio for second homes after speculation that the requirement would increase.

The government aims to tackle “overly-rapid” price gains in some cities as the nation’s stimulus package drives a property-market rebound, the statement said. Prices across 70 cities rose at the fastest pace in 16 months in November after bank lending rose to a record.

“Today’s property measures are less stringent than expected as the government didn’t raise the down-payment ratio, which was what the market most feared,” said Xing Ziqiang, a Beijing-based economist at China International Capital Corp. “Property-market growth is too important for local governments’ revenue and the nation’s economic recovery.”

Premier Wen Jiabao pledged Dec 27 to tackle “excessive” real-estate gains in some parts of the nation. The government this month re-imposed a sales tax on homes sold within five years of their purchase, after cutting the period to two years in January 2009 to bolster the flagging property market.

China Vanke Co, the nation’s biggest listed property developer, has fallen 15% in the past month on concern that cooling measures will hurt earnings. Poly Real Estate Group Co, the second-largest, dropped 17%.

Chinese media reports have speculated that tightening measures could include raising second-home downpayment requirements to 50% and introducing a property tax for the first time. The Jan 10 statement didn’t mention a property tax.

The government will “guide reasonable housing consumption and curb speculative investments”, boost land supply and accelerate the construction of lower-priced, smaller homes, the statement said. The State Council said that different loan and tax policies for purchases of first and second homes, and for “regular” homes as opposed to bigger and more expensive ones, must be “strictly” implemented.

The government will crack down on property developers hoarding land or delaying projects and probe local authorities’ circumventing related central-government policies, according to the statement.

A US$586 billion (RM1.95 billion) stimulus package and record lending helped property sales jump 87% by value in the first 11 months of 2009. A central bank survey released last month showed 67% of Chinese households say property prices are “too high to accept.”

“The government wants to squeeze speculative home transactions without hurting economic growth,” said CICC’s Xing, “Across-the-board tightening would cause a 20% decline in property sales and drag 2010 economic growth to as low as 6.5%.”

China’s growth rebounded to 8.9% in the third quarter of 2009, the fastest pace in a year. Real estate spending accounted for about a fifth of urban fixed-asset investment in the first 11 months of last year.

Local governments doubled their income from land auctions in 2009 as transactions boomed, the Shanghai Securities News reported Jan 4, citing a report from the China Index Academy.

Local authorities are already tightening property rules. In Shanghai, homebuyers must prove they are first-time purchasers before benefiting from a reduced tax on transactions, the city’s government said Dec 31. In the south, Shenzhen will carry out a three-month crackdown on property speculation, China Business News reported Jan 6, without citing anyone.

Chinese policy makers are trying to ensure an economic rebound and at the same time prevent excessive liquidity in the financial system from creating bubbles in stocks and property. Liu Mingkang, the nation’s top banking regulator, wrote in an opinion piece in Bloomberg News on Jan 4 that “structural bubbles threaten to emerge”. – Bloomberg LP