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Steering the market(附图)
http://www.sina.com.cn 2003/07/04 09:45  上海英文星报

  AT least 30,000 visitors braved hot and stormy weather last weekend to tour the "Villa Exhibition" showing luxurious properties priced from 1 million yuan (US,000) to 35 million yuan (US.2 million).

  Another big housing exhibition has also been held in the Shanghai Exhibition Centre but these were mainly medium-priced apartments.

  After the two-month-long SARS scare, local home buyers and investors expressed their enthusiasm for property purchases ahead of the new housing loan policy of the People's Bank of China, the nation's central bank.

  On June 13, the People's Bank of China issued a circular, saying commercial banks should limit lending to real estate developers, beef-up credit management and increase down payments to be paid by buyers of second or luxury homes. The policy also encourages the banks to provide loans for low and mid-priced housing development.

  Although bank branches have not made public the details of the circular, it has generated much discussion.

  Less risky

  The new policy was released after a year's preparation and has tightened control on commercial banks making housing loans because the central bank has found hidden problems caused by unqualified real estate developers.

  Financing real estate is part of the core business of the commercial banks. By April this year they had real estate loans outstanding totalling 1,836 billion yuan (US billion) representing 17 per cent of their total lending. Mortgages added a further 9 per cent to the banks' exposure at about 925 billion yuan (US billion).

  "The most worrying aspect for the People's Bank of China is the safety of the loans of the commercial banks. And the main goal of the circular is to avoid risks in the future," said Zhang Rongfang, spokesman of People's Bank of China Shanghai Branch.

  The 21st Century Business Review reported that the central bank's audit of commercial banks showed percentages of loans and the amount of money involved which violated lending rules accounted for 9.8 per cent and 24.9 per cent of the total respectively. The audit result recalls the property bubble of 1993.

  In Shanghai, commercial loans for real estate developers and individual mortgagees accounts for 55 per cent and 45 per cent respectively of the total. The level of new loans issued by financial institutions had reached 11.3 billion yuan (US.4 billion) by April this year, of which 8.1 billion yuan (US million) were medium and long-term loans, and accounted for 71.4 per cent of the total.

  Warnings against overheating in the real estate market have been sounded since the latter part of last year. Experts became concerned that if it were to go unchecked, the overheating might develop into another property market bubble.

  In Shanghai, commercial loans to individuals which began in 1999, have been successful with a bad loan rate of less 0.23 per cent, a figure lower than in Hong Kong or the US.

  "But the figure does not mean the loan risk is much lower because the business is just at the early stage and many risks have not fully exposed," said Zhang.

  "So preventive measures should be taken early as the loans are mostly mid- and long-term."

  Fired up

  According to the central bank circular, commercial loans for property development and developers' land banks together with loans for individual home purchase have become harder to get.

  The new policy has got some real estate developers fired up because it will break their financial links with the banks and increase their costs. But the new policy is designed to re-regulate the market more closely and to wash out low-quality developers whose main financial resource is bank loans.

  "The bad ones should be out of the game, especially the businessmen with special and close relationships with government officials who get very cheap land with very little financial capital," said an insider who asked not to be identified.

  The central bank has intervened with measures to raise both down payments and interest rates for luxury apartments and villas and also for second homes because there is a shortage of affordable housing at the same time as many luxury dwellings are lying vacant.

  "About 50 per cent of the buyers of the villas are valued between three million and five million yuan. However, the new policy will upgrade the threshold for real estate investment," said a sales director surnamed Zhao Shanghai Anchang Property Co Ltd.

  The new policy is welcome news for the great mass of home buyers who are eager to get medium- and low-cost housing because the loans will be encouraged for this sort of building programme.

  "The policy is beneficial for us as ordinary people with middle-level income," said Xu Feng, a civil servant. Xu's monthly income together with his girlfriend is less than 5,000 yuan, which is not enough to pay for one square metre of housing in downtown Shanghai. Without the financial support of their parents, the to-be-married couple would not be able to make even a down payment.

  Market forces

  The "second property" in the bank's circular is harder to police. Some experts have criticized this aspect of the new policy saying that it's unnecessary to limit individual investments in real estate too strictly because it should be left up to market forces.

  Otherwise, the cost of supervising individual property investments would be too high for the government since a reliable credit system has not been fully set up in China, even in Shanghai.

  Another problem is how to define "luxurious" property: does it mean prices above 6,000 yuan (US) or 7,000 yuan (US) per square metre or is it even higher?

  Experts in the property sector hold opposing opinions on where housing prices are going.

  In the short term, the new policy will trigger some investors to buy before the new policy has been fully implemented, according to Zhang.

  "I don't believe the new policy will change the real estate market too much because it is just part of the overall business chain," said Sheng Jie from Forest Manor, a local luxurious villa.

  Experts say the people who are creating the biggest problem in China's real estate market are the profiteers, especially those enjoying close relationships with top government officials. Such speculators take maximum advantage of bank loan "leverage".

  The most essential element in more closely regulating the real estate market is to make land lease procedures more transparent. If developers are forced to pay for land-leasing without loans from banks, it will eventually force bad developers out of the game.

  Although the exact details of the implementation of the new policy have not been released to local branches of the People's Bank of China, it is thought "different commercial banks will have their own bottom line for the size of the down payment while insiders say the rate will possibly be over 40 per cent," said Jin Lei, who works at one of the commercial banks.

  As the circular is so controversial and gives no definite date for banks to work out specific measures, it may end up doing nothing, according to Yin Kunhua, director of the Real Estate Industry Research Centre under the Shanghai University of Finance and Economics.

  "It is not in line with the intention of the central government to boost the industry," he said. "The Ministry of Construction will soon work out relevant policies to reduce the negative effect of the circular," Yin said.




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