Shanghai’s banking regulator has emphasized the importance of the 40% down-payment rule for second homes in a bid to prevent real estate speculation. Emphasis may not be enough. Strict enforcement may be necessary.
The Shanghai Housing Guarantee and Administration Bureau said it has ordered real estate developers to register their sales plans with the local industry watchdog to prevent them holding the properties for higher profits.
The Shanghai Bureau of the China Banking Regulatory Commission said banks in Shanghai must strictly comply with the down-payment requirement on second homes.
The local banking regulator said, ‘"Banks are banned from bypassing the rules under the excuse that they can’t get clients’ credit records due to lack of access to the central bank’s individual credit database." .The regulator also highlighted irregular practices such as banks claiming credit records couldn’t be obtained because it was hard to investigate applicants’ property deals outside Shanghai.
The regulator added that banks also can’t use their own definition of what constitutes a second home.
In 2007, the authorities asked banks to take at least 40% down payment with an interest rate at least 10% higher than the benchmark rate on second homes to drive out speculation in the then red-hot real estate market.
When the market lost steam from the second half of last year, many banks ignored the rule on interest rates and some even ignored the down-payment requirements.
New-home sales in Shanghai, excluding those related to urban redevelopment, jumped nearly 70% to 8.7 million square meters during the first half of this year. That compares with 8.9 million square meters sold in the whole of 2008.
China View gives the shocking news that during market booms, some developers would deliberately slow their sales process to reap more profit as prices continued to rise. The bureau said it would require developers to launch property sales under certain timelines or their credit record might be affected. More will need to be done.