[photopress:real_estate_trimming_supply.jpg,full,alignright]China’s real estate keeps climbing. First the central authorities tackled the problem on the supply side. Local governments and property developers did not respond positively enough and substantially increased land and housing supply.
Now the effort will be to slow the demand growth, especially speculative demand in the housing market.
The average housing price in 70 major cities had increased by 8.2% year-on-year in August, the fastest monthly growth this year.
It was reported recently that the central bank is thinking of lifting the down payment ratio for buying a second house from 30% to 40%.
This might help curb speculation in the domestic housing market.
Mortgage loans are a key driving force behind the rapid growth in bank lending and rocketing property prices.
In ten years China’s mortgage loans as a share of total loans outstanding have gone from 0.2% to 9.4%.
By raising the minimum required deposit on mortgages for repeat buyers, domestic banks, the main source of funding for homeowners, may well tighten the supply which will at least slow down speculative housing demand. And it will encourage domestic banks to reduce their exposure to an overheating property market.
In recent years, Chinese banks have competed hard with each other to expand mortgage lending to increase their profits, asset base and market share. There is no suggestion of sub-prime problems here. The mortgage non-performing loan ratio remains low.
However, as soaring inflation keeps pushing up the country’s interest rates, Chinese banks will probably re-examine their exposure and tighten up on loans. Which, hopefully, will take some of the heat out of the property market.