BIZCHINA / Top Biz News

House down payments may rise steeply
By Zheng Lifei (China Daily)
Updated: 2006-05-12 08:52

The central bank may raise housing mortgage down payments dramatically in a bid to cool down the red-hot property market.

The People's Bank of China is mulling over a new mortgage policy to curb housing price hikes; and could raise the amount from the current "20 per cent to 40 or 50 per cent,"  reported 21st Century Business Herald yesterday, quoting "a well-informed" source.

The newspaper did not make it clear if the top rate would apply only to such sectors as luxury housing or second properties; or whether low-price housing would fall in its ambit.

The central bank refused to comment on the report.

Analysts and economists agree that the central bank might take further measures to rein in the property prices but expressed scepticism over such a hefty rise in down payments.

"It is quite unlikely that the central bank would raise the down payment by such a huge margin," said Yi Xianrong, a research fellow at the Financial Research Centre of the Chinese Academy of Social Sciences.

"It is sound if the level is raised to 30 per cent. The current 20 per cent threshold is low," said the researcher.

According to official statistics, property prices in 70 large- and medium-sized Chinese cities rose an average of 5.5 per cent in the first quarter from the same period in 2005, prompting many to call for strong government action to curb the trend.

The Beijing Construction Committee on Wednesday issued a regulation, to be effective June 1, stipulating that property developers that hold back on new houses to reduce supply in expectation of higher prices will not be allowed to sell new houses for at least one month.

But some critics say such measures will lead to the market further tilting to the supply side, and the real burden would fall on homebuyers.

House prices in Beijing surged around 1,000 yuan (US$124) per square metre in the first two months of this year, up 17.3 per cent from the same period last year, according to the Beijing Construction Committee.

"A particularly large share of new lending in the first months of 2006 went to real-estate developers," the World Bank said in its latest economic update on China.

"Bank credit for real estate development jumped, absorbing about half of the total credit growth in the first two months of 2006," it said on Wednesday.

The central bank raised its benchmark one-year lending rate by 27 base points to 5.85 per cent last month, a move that was widely seen as to slow down the sizzling economy, which grew 10.2 per cent in the first quarter.

"It is expected that the central bank will take further steps to finetune the economy," said Li Yongsen, an economist with Renmin University of China.

"But what measures it will take, be it rate rises or down payment hikes, will depend on the market feedback from the rate rise last month," Li said.

The Chinese-language International Financial News reported yesterday that in its recently-issued 2006 credit guidance for Shanghai, the central bank's Shanghai office recommended that real estate-related credit supply continue to be heavily regulated.


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