Beijing city authorities tighten mortgage rules to cool off buying frenzy
Down payments raised to 35 per cent for first purchase and half for second home
The Beijing city government tightened mortgage rules on Friday by requiring homebuyers to make a down payment of at least 35 per cent of the property price in a move to cool the housing market.
For people who are purchasing a second home, the minimum down payment is increased to half, while buyers of big or luxury flats will have to put up 70 per cent, according to a notice issued by the municipal government.
The amounts are up from 20 per cent for first homebuyers and 30 per cent for second homebuyers.
Beijing is following in the footsteps of Nanjing and Hangzhou, where similar policies restricting home purchases have been introduced. Other major cities that are seeing housing prices rise strongly are likely to follow suit.
Reducing homebuyers’ access to bank credit would help to “reduce leverage and stave off speculation in the home market”, said Lu Zhengwei, chief economist at Industrial Bank. “But such measures came too late” since prices were already dangerously high, creating significant risks if they started to fall, Lu said.
Prices for new flats in Beijing rose 25.8 per cent in August from a year earlier, while prices increased 37.8 per cent in Shanghai and 38.8 per cent in Nanjing, official statistics showed. New home prices in Hefei and Xiamen gained more than 40 per cent.
In addition to tightening control over mortgage loans, Beijing has also required property developers to cap their sales prices and boost the supply of flats smaller than 70 square metres, according to a government announcement.
Administrative measures to rein in home prices have so far been ineffective.
Land supply, which is monopolised by local governments, remains tight and bank credit easily available, creating a very attractive investment opportunity for mainlanders amid a dearth of other options.
In July, almost all credit extended by banks was in the form of mortgages.
Wang Jianlin, who became China’s richest man through real estate, told CNN that China’s housing market was witnessing the “biggest bubble in history”.
In 2010, Beijing became the first mainland city to restrict home purchases, but prices have more than doubled or even tripled since then.
Additional reporting by Zhou Xin