China Raises Home Mortgage Rates, Down-Payment Ratios to Curb Speculation

China’s cabinet raised minimum mortgage rates and down payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March.

Down payments for second homes must be at least 50 percent, up from 40 percent, and interest rates can’t be lower than 110 percent of benchmark rates, the State Council said in a statement, citing decisions made during a meeting yesterday. Banks should also raise down payment ratios and rates for third homes “by a broad margin.”

The State Council said local governments have failed to control speculation, a day after a survey showed property prices in 70 cities jumped 11.7 percent from a year earlier. China’s economy grew at the fastest pace in almost three years in the first quarter, a report showed today, fanning concern that record lending is creating asset bubbles.

“Recently property and land prices in some cities showed a trend of excessively rapid increases, making it difficult for residents to solve housing problems through the market and increasing financial risks,” the statement said. “More stringent and forceful measures must be taken.”

Down payments for first homes bigger than 90 square meters can’t be lower than 30 percent, the government said. Local governments will be allowed to take temporary measures to “strictly” restrict speculation, according to the statement.

Tax Policy

The government will hasten study on tax policies that adjust individuals’ property gains, the statement said without elaborating. Shanghai, China’s wealthiest city, may impose a property tax to curb price increases, the Shanghai Securities News reported April 8, citing unidentified people.

Developers found to delay home sales to speculate on further price gains or hoard land will be barred from share sales, “major asset restructurings” or bank borrowing, today’s statement said.

“ The government has been clear that it thinks property prices are rising too fast only in some markets,” said Mark Williams, a London-based economist at Capital Economics Ltd. “It will be wary of pushing cooling measures too far for fear of causing a downturn in the broader property market.”

Residential and commercial real-estate prices in 70 cities climbed 11.7 percent last month from a year earlier, the National Bureau of Statistics said yesterday. Haikou, the capital city on the southern island of Hainan, had the biggest gain, with a 53.9 percent jump in overall property prices.

Editor: Ben Richardson.

To contact the reporter on this story: Yanping Li in Beijing at yli16@bloomberg.net

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