25/06 China Banks Told to Cut Loans to Property Speculators

Published: Saturday, 25 Jun 2011 | 12:13 AM ET

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By: Reuters

China has reiterated orders to banks to curtail lending to property developers who are speculating on rising house prices to guard against overheating in the frothy sector.

Jerry Driendl | The Image Bank | Getty Images Apartment buildings in Liaoning Province, China.

Clarifying media reports that regulators have asked banks to reduce lending to developers, a media officer at China Banking Regulatory Commission said loan restrictions should only apply to companies suspected of carrying out speculation.

The Beijing News had reported on Friday that Liao Min, who heads the Shanghai branch of the China Banking Regulatory Commission, had told banks to lend less to real estate developers.

Liao was also quoted as saying that banks should take property projects rather than land as collateral for loans.

When developers use land as collateral, they tend to overstate the values by pledging an entire plot of land instead of the relevant parcel their projects occupy, said Hwabao Trust analyst Nie Wan in Shanghai.

Concerned that record home prices may trigger a housing market bubble and destabilize the economy, China has leaned against the market in the past year.

Beijing has lifted down payments and mortgage rates, limited property purchases, launched a property tax, and restricted credit to the real estate industry. Concern of a pick-up in bad loans has also led banks to cut lending.

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China's inflation rate accelerated to a near three-year high of 5.5 percent in the year to May and is widely expected to quicken further in June and July. Rising house prices are the second-biggest driver of price pressures after surging food costs.

Despite the slew of tightening steps, house prices are still rising, albeit at a slower pace. Annual property inflation eased to its slowest pace this year of 4.2 percent in May, down a whisker from April's 4.3 percent.

Given stubborn prices, Beijing has shown no signs of relaxing its tightening stance. However, industry observers do not expect China to adopt new measures.

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TOPICS:Banking | Inflation | Housing | China