China orders tighter property lending

BEIJING: China's banking regulator ordered lenders to take more care when making real-estate loans, widening efforts to prevent property speculators from causing asset bubbles and bad debt.

Banks should not lend to developers found by state agencies to have held land without building houses, the government said in a statement posted online yesterday evening. They should also stop approving new lines of credit to 78 government-controlled companies whose core business isn't property development if they use collateral other than construction projects already in progress, the statement said.

China's property prices rose 10.7 per cent last month, the fastest pace in almost two years, fueling concern that record lending and inflows of capital from abroad are creating asset bubbles in the world's third-biggest economy. The government this month raised deposit requirements for buyers at land auctions to 20 per cent of the minimum price to raise costs for developers. It also lifted banks' reserve requirements twice this year and re-imposed a tax on home sales.

"We have to closely monitor China's asset bubbles," Liu Mingkang, chairman of the China Banking Regulatory Commission, said yesterday at a conference in Beijing. Property prices have changed "quite a lot in the past five years," he said.
Former Federal Reserve chairman Alan Greenspan yesterday said there are "bubbles" in China, without indicating whether they were in property and stocks.

"There are significant bubbles in Shanghai and along the coastal provinces, but there's some of that going back into the hinterlands as well," Greenspan said in an interview on Bloomberg Television.

The regulator's latest order underlines concerns that banks may be at risk from companies that are speculatively raising capital backed by property investments. Banks must carry out "serious" examinations of developers that are repeatedly using the same pieces of land as collateral for loans, the regulator said in the statement.

"These measures are intended to urge developers with land to build houses and sell them quickly to increase market supply," said Zhao Qingming, a Beijing-based senior analyst at China Construction Bank Corp, the nation's second largest lender. "It may curb fast growth in housing prices, but more measures are needed to tackle the root issue, including controls on land prices and speculative house-purchase investments."

"We ask banks to check the qualifications of the developers and they must have a face-to-face check," the CBRC's Liu said on Friday.

By Bloomberg