March 22, 2005

Five-year rate stands at 5.51 per cent

China tightens mortgage lending rules

SHANGHAI

Acting to cool the sizzling property market, China’s central bank last week tightened mortgage lending rules to raise the cost of borrowing for home loans.

The adjustment to preferential mortgage rates, announced by the People’s Bank of China, effectively raised the interest rate on a home loan with a maturity of five years to 5.51 per cent — or 90 per cent of the base rate of 6.12 per cent —from the previous 5.31 per cent.

The central bank said banks could also request a minimum down payment on a home of 30 per cent of its purchase price, up from 20 per cent, 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.

Last week, the government reported that investment in property, factories and other fixed assets rose 24.5 per cent in January-February over the same period a year earlier.

The government’s target for on-year growth in investments in property and other fixed assets this year is 16 per cent.

The rebound after a 21.3-per-cent on-year increase in December has raised worries that speculative investments in property and other areas are undermining efforts to slow the economy from sizzling 9.5 per cent growth last year.

Investments in the property sector rose 27 per cent to 120 billion yuan ($14.5 billion (U.S.) 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 per cent year-on-year in the fourth quarter of 2004, according to government figures, making the city one of China’s fastest growing property markets.

The Associated PressFive-year rate stands at 5.51 per cent China tightens mortgage lending rules >

SHANGHAI

Acting to cool the sizzling property market, China’s central bank last week tightened mortgage lending rules to raise the cost of borrowing for home loans.

The adjustment to preferential mortgage rates, announced by the People’s Bank of China, effectively raised the interest rate on a home loan with a maturity of five years to 5.51 per cent — or 90 per cent of the base rate of 6.12 per cent —from the previous 5.31 per cent.

The central bank said banks could also request a minimum down payment on a home of 30 per cent of its purchase price, up from 20 per cent, 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.

Last week, the government reported that investment in property, factories and other fixed assets rose 24.5 per cent in January-February over the same period a year earlier.

The government’s target for on-year growth in investments in property and other fixed assets this year is 16 per cent.

The rebound after a 21.3-per-cent on-year increase in December has raised worries that speculative investments in property and other areas are undermining efforts to slow the economy from sizzling 9.5 per cent growth last year.

Investments in the property sector rose 27 per cent to 120 billion yuan ($14.5 billion (U.S.) 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 per cent year-on-year in the fourth quarter of 2004, according to government figures, making the city one of China’s fastest growing property markets.

The Associated Press

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