A blog on Chinese economy & society

China to ban 3rd mortgages in key cities

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The Shanghai and other Asian markets have been choppy lately, mainly on the prospect of the Chinese government backing off from regulating the property market. So much so that property sales doubled last week in Beijing. Some other cities have even racked up price increases.

To prove that it’s indeed serious about pricking the property bubble, the powerful China Banking Regulatory Commission is now banning 3rd mortgages in Beijing, Shanghai, Shenzhen, and Hangzhou all together. Taking out 3rd mortgages in other cities, while still legal for now, will require 60% down payment and almost 200bp over prime rate.

Of course the central government worries about economic slowdown, but failing to regulate the property market risk serious popular discontent. With most full year GDP forecasts still in the 9%+ range, the tightening measures seem to be in place, for now.

As a side note, the 21 Century Business Herald has a follow up story on the stress test that raised so many eyebrows. Assuming a 30% drop in housing prices and 108bp  interest rate hike, the property portfolios of  sample banks would have registered 2.2 percentage point increase in their bad debts, and taking 20% hit to pretax profit.

Yes, painful, and would have been excruciatingly more so with a 60% fall in housing prices, but the system will not collapse. With the hindsight, it seems that the 60% fall stress test was ordered partly as a way to advertise to all speculators that the government is indeed serious and won’t be taken hostage by the property market. However, I expect the economy to slow dramatically in Q4, so it might have to sing a different tune by then.


Written by Cindy Luk

August 6, 2010 at 1:56 am

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