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Regulator clarifies mortgage rules
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China's central bank and banking regulator yesterday issued a supplementary notice on the credit management of commercial properties, clarifying key points in the mortgage policy for those buying a second apartment.


The notice follows the document on September 27, also jointly released by the People's Bank of China and the China Banking Regulatory Commission. The document raised mortgage deposits to 40 percent for second homes.


But what constitutes a second home has been under discussion for the past few months.


Of the banks that have released rules on individual mortgages, only China Construction Bank considers the second home purchase on a family rather than an individual basis. Other Chinese and foreign banks are considering second home purchases on an individual basis.


The supplementary notice outlined clearly this time that the second apartment would be considered on a family rather than individual basis.


Meanwhile, for those who have bought their first apartment through a mortgage, they can still enjoy a preferential mortgage rate only when the size of their first apartment is smaller than the local average.


Moreover, for people who have used the public housing fund for their first apartment, the purchase of a second home should also follow the stipulation in the notice.


"The over-rapid growth of mortgages and illegal behavior of some banks' mortgage business increase the potential risks," Liu Shiyu, vice-governor of the central bank, said.


Total default mortgages at the three major commercial banks - China Construction Bank (CCB), the Industrial and Commercial Bank of China and Bank of China - rose to 19.2 billion yuan at the end of 2006 from 18.4 billion yuan in 2005, according to a CCB report.


"The move shows the regulator's determination to curb skyrocketing property prices and prevent growing speculation in the market," an analyst with DTZ, a major real estate service company, said.


According to statistics from the National Development and Reform Commission, prices of new residential apartments in the country rose by 10.6 percent year-on-year in October.


Preventing the bubble from bursting in the property market was also one of the highlights on the agenda of the just-concluded Central Economic Work Conference.


Some banks, in fact, have taken a cautious approach to home loans since the US subprime crisis hit.


Mortgage down payments currently range from 20 to 30 percent for the first apartment. But in real terms they are 10 percent or even zero given the inflated prices.


(China Daily December 12, 2007)

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