Nov. 9 (Bloomberg) -- China’s central bank and banking regulator may “soon” issue measures to limit the use of debt in real-estate purchases after asset prices climbed, a Shanghai official said.

Regulators may reduce “leverage ratios,” Fang Xinghai, the director-general of Shanghai’s financial services office, said at a forum in Beijing today. “I would think that soon you will see these measures coming out of the central bank and banking regulatory commission.”

A record $1.27 trillion of new loans this year and inflows of cash from investors betting that the yuan will appreciate threaten to create stock and property bubbles. China’s banking regulator plans to review debt levels at some developers on concern that borrowings are fueling excessive gains in property prices, a person familiar with the matter said previously.

“Asset prices may continue to climb as foreign capital flows into China betting on the yuan’s gain,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing.

Poly Real Estate Group Co. fell 1.1 percent as of the 11:30 a.m. break in trading in Shanghai. A measure of property stocks on the Shanghai Composite Index declined 1 percent, the biggest fall among five industry groups.

Mortgage Requirements

“Given the rise of asset prices, whether in real estate or the stock market, or some kind of other assets, there is a case for reducing the leverage ratio in these areas, particularly in the real estate area,” Fang said today.

His office is a local regulator and policy maker, underneath the Shanghai government.

While home prices rose at the fastest pace in a year in September and the Shanghai Composite Index of stocks has climbed 73 percent this year, Fang is “not concerned” at asset-price levels. Existing rules, such as a 30 percent down-payment requirement for first mortgages and restrictions on borrowing to buy stocks, limit risks to the financial system, he said.

“If there is some kind of collapse in the real estate market going forward the impact on the financial system is going to be very minimal,” he said.

The China Banking Regulatory Commission said Oct. 28 that it plans to tighten rules on personal loans to prevent them from being used for speculation.

The commission also wants to reduce leverage at developers that bought land at inflated prices and at large state-owned companies that have entered the property market, the person familiar with the matter said, declining to be identified because the plans hadn’t been made public.

Excessive borrowing by some developers threatens to cause an increase in delinquent debts should prices collapse, the person said.

The government should open new channels for investment by state-owned companies after they received a big portion of the new loans extended this year, the economist Xing said. State companies have paid record prices for land this year, he said.

To contact the reporter on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net

Last Updated: November 9, 2009 00:11 EST