China raises lending rules to help slow property boom

  • Business
  • Thursday, 17 Mar 2005

SHANGHAI, China (AP) - Acting to cool the sizzling property market, China's central bank on Thursday tightened mortgage lending rules to raise the cost of borrowing for property loans. 

The adjustment to preferential mortgate rates, announced by the People's Bank of China late Wednesday, effectively raised the interest rate on a home loan with a maturity of five years to 5.51 percent - or 90 percent of the base rate of 6.12 percent - from the previous 5.31 percent. 

The central bank said banks could also request a minimum downpayment on a home of 30 percent of its purchase price, up from 20 percent, 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. 

Property prices in Shanghai jumped 10.4 percent year-on-year in the fourth quarter of 2004, according to government figures, making the city one of China's fastest growing property markets. 

Thousands of people line up for a chance to buy new apartments, while many in the city complain they are priced out of the market. 

In a modest effort to discourage speculative deals said to be driving prices higher, last week Shanghai began imposing a 5 percent tax on profits from individual sales of residential properties owned for less than a year. 

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. 

Authorities have also announced plans to continue to control land sales, upgrade old apartments and improve an online registration system for property transactions. - AP

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