Shenzhen tightens up on lending Shenzhen has tightened mortgage lending to buyers of second-hand homes, with mainland banks providing lower valuations for the latest batch of sales. The move, which will force flat seekers to settle the difference in cash or default on the deal, is seen by some property experts as a prelude to a new round of tougher measures to cool overheating property prices in the city's housing market. 'The municipal government is definitely worried about surging property prices,' said Michael Choi Ngan-min, the chairman of Land Power International. While property prices had grown an average of between 9.8 per cent and 14.6 per cent from last year to March this year, secondary prices had risen even faster, by as much as 50 per cent from a year ago, according to property agents. 'Rumours have been circulating for a while that the municipal government will take action to curb the overheating market,' Mr Choi said. 'The lowering of valuation probably is just a prelude. More will come.' Agents said that while property owners were raising asking prices for their units in the secondary market, mainland banks had started lowering their valuation on the units. 'Banks didn't announce that the valuation was lowered but we learned from bankers that it was an internal guideline issued in mid-April,' said Andy Lee, a general manager at Centaline (China), a unit of Centaline Holdings. 'The directives will definitely affect transactions, especially for luxury properties which involve bigger lump sums,' Mr Lee said. 'With the higher down-payment required, investors will be more cautious in entering the market.' For example, a 200 square metre unit in Honey Lake has been sold at six million yuan, but banks assessed its value at 5.5 million yuan, Mr Lee said. With banks offering a 60 per cent loan to value ratio for a luxury unit, the buyer of the Honey Lake property obtained a HK$3.6 million mortgage loan before lenders lowered the valuation. The lower valuation pulled the mortgage loan to 3.3 million yuan and the buyer had to settle the 300,000 yuan difference in cash under the new valuation. Mr Lee said 10 deals arranged by Centaline were being put on hold. 'We are negotiating with banks, hoping they can revise the valuations upward,' Mr Lee said. Otherwise, buyers who failed to settle the difference would be forced into default. He expected the measures would cool the overheating secondary property prices. According to Midland Realty, secondary prices in Shenzhen rose 58 per cent to 1,133 yuan per square foot in the first quarter, compared with the same period last year. Transaction volumes fell 13 per cent to 19,000 units in the first quarter of this year. However, Midland said the drop stemmed from the Lunar New Year holiday falling in February. Transactions in March were almost 50 per cent higher than in February. The ratio of transactions for second-hand homes to primary flats in Shenzhen is 1.5 to one. Mr Choi said the surge was spurred by a smaller supply of primary flats and strong demand from end-users and investors inside and outside the city. He also expected that the tightened lending would not have a big impact on the housing sector in view of the strong purchasing power of domestic and overseas buyers. As the Western Corridor border checkpoint was due to open in July, more Hong Kong investors had expressed interest in buying Shenzhen properties, he said. In the long run, the government would regulate the market via supply, Mr Choi said. 'The municipal government is also planning a massive construction of government-subsidised housing and public rental flats to solve the housing problem of the lower income groups.'