Rise in cost of borrowing takes aim at major cities' soaring real estate market The music in China's booming property market has not stopped, but it has hit a sour note after the announcement by the People's Bank of China that the one-year benchmark lending rate would rise by 27 basis points to 5.85 per cent in an effort to put a brake on credit. Beijing is targeting the country's overheated economy and is taking aim at the property sector, especially those cities where prices have been growing this year at more than 10 per cent, despite the government's calls to cool it down. A survey of 70 large and medium-size cities published by the National Development Reform Commission last week found that nationwide housing prices rose 5.5 per cent year on year in the first quarter, with increases of 15.6 per cent in Dalian , 14.4 per cent in Hohhot and 10.4 per cent in Shenzhen. Banks have already got tough with borrowers. Shenzhen city government has announced several measures to slow the rise in property prices, including an increase in the downpayment for second homebuyers from 30 per cent to 40 per cent and banning the pre-sale of selected new developments. Other cities are expected to follow suit, including Beijing, where property prices rose 17 per cent year on year in the first two months of the year. Unlike a year ago, Shanghai is not at the centre of the storm. Measures taken by the city and central governments last year succeeded in cooling its property fever. Last year, residential property prices in the city rose 9.2 per cent, down from 15.8 per cent in 2004, compared with increases of 19.2 per cent in Beijing last year and 22.8 per cent in Nanjing . In the first quarter of this year, Shanghai prices fell by 4.4 per cent year on year. Fan Wei, president of Shanghai Forte, one of the city's biggest developers, said that while the increase was small, it would have a short-term psychological impact on the property market and affect the buying behaviour of some consumers. Lina Wong, a managing director for Colliers International, said that the rise was bad news for Shanghai developers but would not lead to panic selling. Property analysts said foreign investors will remain bullish and may use a domestic slowdown to obtain better prices. This year, foreign money has flooded into high-end office buildings, hotels and service apartments in Shanghai. One bull is Morgan Stanley Real Estate, which announced in the middle of this month that it would open an office in Shanghai. It is one of several global property companies that have invested heavily in the Shanghai market in the past three years, attracted by rapid economic growth. Over the past five years, it has invested US$1.5 billion in Chinese real estate and has said that it aims to invest US$3 billion this year.