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Mortgage loan dangers
2006-06-02
China Daily
The first-quarter financial report released on Wednesday by the People's Bank of China revealed that the acreage of newly developed and finished commercial houses keeps rising, while their prices continue to go up, although at a slower pace than the previous breakneck growth.
In the meantime, the central bank's survey in 10 major cities shows that the overall mortgage expenditure of urban families accounts for 35 per cent of their incomes, a high but nevertheless "safe" level, according to the report.
The China Banking Regulatory Commission sets the warning level at 50 per cent.
In Shanghai, Beijing and Tianjin, however, that ratio is getting perilously close to the warning level, reaching 45, 42 and 39 per cent respectively, indicating increasing danger for those families and local commercial banks.
Continual rises in both the acreage of property development and house prices, coupled with the dangerously high family debt ratio, are certainly not good signs for the sector in those big cities.
The central government has displayed greater muscle in taming runaway house prices. It has recently launched a spate of stringent measures within a short period of time, with the most striking being the hike in the mortgage down payment ratio from 20 per cent to 30 per cent for houses larger than 90 square metres, starting from yesterday.
If it is hard to rein in property developers' speculative activities, controlling demand would be a more appropriate way to cool down the sector.
The move has aroused controversy, but if strictly implemented, it will certainly prove to be much more effective than previous measures to control house prices.
Government measures to control runaway house prices also include a requirement that 70 per cent of all houses should be smaller than 90 square metres, a reiteration of the ban on the building of villas, greater transparency in house sale information, greater checks on developers' price manipulation, and the building of more low-cost housing.
These measures have come out one after another in recent months. The high frequency shows the authorities are aware of the necessity of taking immediate action, and also of the growing dangers if they fail to do so.
Those measures, coupled with the recent market trends, will mark a watershed for the industry.
If they prove effective, house prices will start to calm down, saving the sector from a scenario where prices reach an unsustainable level before the bubble bursts.
If there are no significant indications of a stabilization of house prices in the coming months, the government will face an embarrassing situation.
There are precedents in which well-intended government measures turned out to be ineffective.
Policy-makers must ensure their policies are seriously implemented.
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