Banks and developers seek to cool growing Chinese property market

China’s property prices rose 10.7% last month, the fastest pace in almost two years, fuelling concern that record lending and inflows of capital from abroad are creating asset bubbles in the world’s third biggest economy.
 
The World Bank has suggested that interest rates, which are unchanged since cuts in 2008, should rise to help contain the risk of a property bubble and analysts at Morgan Stanley say higher reserve requirements for China's bank may be imminent and interest rates could start to climb in April.
 
Banks lent an unprecedented 9.59 trillion yuan last year to back the government’s stimulus programme and even they are not over keen to slow down. The central bank of China has twice raised banks’ reserve requirements this year and the government is targeting a 22% reduction in new lending.
 
China is poised to overtake Japan as the world’s second- largest economy this year, according to the International Monetary Fund. China has already surpassed the US as the world’s largest auto market and Germany as the top exporter.
 
China’s banking regulator has ordered lenders to take more care when making real-estate loans, widening efforts to prevent property speculators from causing asset bubbles and bad debt.
 
Banks should not lend to developers found by state agencies to have held land without building houses, the government said in a statement last week. They should also stop approving new lines of credit to 78 government controlled companies whose core business isn’t property development if they use collateral other than construction projects already in progress, according to the statement.
 
Cheung Kong, the Hong Kong-based real estate company controlled by billionaire Li Ka-shing, is capping the number of homes for each buyer at a new residential project to try to curb speculation.
 
Each buyer, either using a personal name or that of a company, can purchase a maximum of two homes at the Festival City project located in the New Territories district, said William Kwok, director of Cheung Kong’s real estate arm.
 
‘We found that many speculators are very interested in our project and we want to protect the self-users. We don’t want this project to be focused on the speculators,’ explained Kwok.