The central government has issued a new directive to the nation's financial watchdogs to help cool the mainland property market, which saw home prices rise strongly last year. The People's Bank of China and the China Banking Regulatory Commission will tighten their scrutiny of bank lending to prevent the illegal flow of funds into the market. They will also move to prevent foreign 'hot money' from affecting the market, according to a circular by the State Council published by Xinhua yesterday. Both measures are seen as part of the government's latest pledge to regulate the property market. Home prices in 70 medium and large cities rose 5.7 per cent in November from a year earlier, after six consecutive monthly advances that saw values grow at the fastest annualised rate in 16 months. The State Council ordered governments of cities that saw sharp rises in home prices to follow the central government's directive to increase the supply of low-cost housing and homes for the poor. Local authorities should closely regulate the market to prevent developers from manipulating property supply through hoarding land sites or withholding homes to push up prices, the statement said. Liao Qun, a senior vice-president and chief economist at Citic Ka Wah Bank, said the circular did not announce any new measures, reflecting the government's desire to stabilise the property sector rather than see a big price correction. He believes the central and local governments will strictly enforce the measures and he expects home sales to drop in the first half. Premier Wen Jiabao on December 27 said excessive property price rises in some cities could prompt the government to use land supply and financial and tax measures to regulate the market. He also reiterated Beijing's intention to increase the supply of affordable housing to low-income groups. Last month, the central government announced the withdrawal of a tax incentive introduced in 2008 to revive the property market. This year, the lock-up period for the resale of a property will revert to the original five years, after it was shortened to two years under the 2008 incentive. That meant owners could resell a property after two years without paying a 5.5 per cent tax. It has been rumoured that loan conditions for buyers of second homes would be tightened with down payments raised to 50 per cent from 40 per cent. But the statement published yesterday said the down payment for a second property for those who had borrowed to buy their first home should still be 40 per cent of the property's value. Local governments should strictly execute tax charges on first-time and second-time buyers, it said. Liao said the market should be pleased down payments on second homes did not rise to 50 per cent. Lee Wee Liat, a senior property analyst at Nomura International (Hong Kong), said the circular did not reveal any new policies but details to differentiate first-time and second-time homebuyers. He expects home presales to rise in the second half of the year as the government has stressed lifting supply by stopping land hoarding. Sizzling market Illegal fund inflows and foreign money fuel boom in mainland property The increase seen by 70 medium and large cities on the mainland in November from a year earlier: 5.7%
