ST : Fresh steps to cool China's property market

Sep 30, 2010

Fresh steps to cool China's property market

BEIJING: China yesterday announced it had taken further steps to cool its red-hot property market, ordering banks not to provide loans for third or more home purchases.

The new measures are aimed at preventing house prices from rising too fast, the State Council, or Cabinet, said in a statement, amid fears of a speculative bubble that analysts say could derail the world's second largest economy.

The State Council said down-payments on all home purchases would now have to be at least 30 per cent. It also limited the number of homes that people can buy in cities where prices are too high, have risen too quickly or where supply is tight.

In April, Beijing announced it would increase deposits on first homes of over 90 sq m to 30 per cent from 20 per cent. Prior to April, all first-time buyers had to make a deposit of 20 per cent.

The new measures urged banks to strengthen their oversight of consumer loans, banning them from being used to buy homes.

The State Council also called for a trial property tax reform now being carried out in some cities to be sped up and gradually expanded to the whole of China. This is widely expected to entail an expansion of the tax on commercial real estate to cover residential houses.

'The new measures are not dramatic, but they convey a clear policy message: Beijing is serious about controlling property prices,' Mr Qu Hongbin, a Hong Kong-based economist with HSBC Holdings, said in e-mailed comments yesterday. 'This should help dampen the expectations' that housing prices will rise quickly, he said.

The new measures are the latest in a series issued this year to try and prevent the property market from overheating.

Official data has suggested that these efforts have started to pay off, with growth in China's property prices slowing for the fourth straight month in August.

But the government has eschewed draconian measures, anxious not to topple a vital pillar of the economy. Real estate accounts for a quarter of investment and 10 per cent of total output.

AGENCE FRANCE-PRESSE, BLOOMBERG, REUTERS