Stricter financial policies of housing loans to prevent bubble
Stricter policies for issuing housing loans, launched by the central bank
Thursday, could prevent housing bubble.
China ended the favorable interest
rates for private housing loans Thursday.
As of March 17, the interest rate
for private housing loans rose at least 0.2 percent to approximately the same
rate as other loans. At the same time, the minimum down payment in cities with
rapid housing price increases was raised from 20 to 30 percent.
The move will
slow the increase in housing price in major cities and discourage residents from
buying second or third homes, said Zhang Xuewu, an expert with the Price Monitor
Center of the State Development and Reform Commission.
Zhang made the
estimates earlier this year that the housing price growth rate should return to
5 percent in 2005 due to changed financial policies, compared with the growth
rate of 14.4 percent last year.
The higher interest rate and down payment
will slow the growth of property prices, said Zhang.
During the past years,
housing prices in major cities have risen abnormally fast. In Shanghai, many
apartments witnessed 20 percent of price increase in one or two months.
Apartments at a community called Oasis Garden made the record price hike of
34,000 yuan (US$4,000) per square meter this January.
The ever growing
housing price turns many citizens to "smart consumers." They purchase the houses
by paying 20 percent of the total fees and borrow the remaining 80 percent from
the banks. Then they lease the apartment and make the monthly payment to the
bank with the rent. Or they might leave the houses vacant and sell it when the
These investors helped drive the housing prices higher and
higher, said Zhang.
The increased down payment will make housing speculation
more difficult, said Zhang.
Wang Zhaowen, spokesman for the Bank of China
said that the move will not exert much influence on ordinary citizens who buy
the houses for their own use.
"It shows the effect by increasing the
financial cost for housing investors in areas with fast price increase," said
China's commercial banks began to grant housing loans at favorable
interest rates in 1998, expecting it -- together with auto loans and education
loans for needy students -- to drive up the consumption and push economic
But in recent years, the private housing loans were manipulated
by some investors, driving up the housing prices and accumulating the banks'
financial risks. By the end of February 2005, outstanding commercial housing
loans exceeded 1.65 trillion yuan ( US$200 billion), accounting for 23 percent
of the commercial banks' medium and long-term loans.
"If the housing bubble
burst and the borrower could not make the repayment, the commercial banks will
be faced with a large amount of bad debts," said Zhang.
In the government
report delivered by Premier Wen Jiabao at the just-concluded annual session of
the National People's Congress, Wen said the government will strive to slow
rocketing housing prices.