It’s a process authorities hope for - stricter lending policies curb property sales, which in return translate into lackluster loan growth to lead a healthy growth of the real estate market.

Shanghai statistics show that new commodities housing sales dropped in the first half on a year-on-year basis in terms of floor area as second-mortgage policies helped curb the property market.

Sales were down moderately nationwide but sharply lower in first-tier cities such as Shanghai and Beijing.

Sales of commodity property dropped 18.5 percent year on year to 12.29 million square meters in Shanghai, the Shanghai Statistics Bureau said last week.

New commodities residential housing sales slumped 22.4 percent to 10.70 million square meters in Shanghai.

"Banks in Shanghai strictly implement the central government's measures on property market by strengthening risks control," the Shanghai Bureau of the China Banking Regulatory Commission said. "The carry-on of the second-home mortgage policy curbed the speculative demand of real estate."

Meanwhile, new commodity house prices rose 9.7 percent year on year in Shanghai, with monthly prices growth dipping.

The outstanding value of total individual mortgage loans in Shanghai rose to 309.94 billion yuan (US$45.38 billion) as the end of June, up 2.9 percent from the beginning of the year.

Individual mortgages started to rebound in the second quarter after dropping for three straight months in the first quarter.

Second-hand mortgages have been a main driver for individual mortgage loan growth in Shanghai despite the fact that first-hand property trading is much heavier than that of second-hand ones.

Second-hand mortgages added 8.34 billion yuan in the first half, far more than the 300 million yuan of first-hand mortgages.

"Second-hand property transactions are mainly made in downtown areas with a heavy reliance on mortgages due to the high prices," the local regulator said. "While in a contrast, first-hand property transactions focused in the outer-ring area with less dependence on lending amid lower property prices."

Economists say China's property market adjustment is expected to continue into 2009.

"Restrictions on second-home mortgage loans introduced in late September 2007 have proved to be the most effective policy tool with an immediate impact on cooling down the property market," said Liao Qun, chief economist/strategist of China Banking of CITIC Ka Wah Bank.

The People's Bank of China and the China Banking Regulatory Commission require mortgage holders who apply for another home loan to produce a down payment of at least 40 percent and pay a 10-percent premium on interest rates in a September 27 announcement. The requirements on third or fourth mortgages are stricter.

Families who have used bank lending or the public housing fund and applied for second or more home lending all have to face the tougher requirements with only one exception - if their first home's area per person is less than the average level in the region. "The restriction on second-home mortgage loans was to tackle the critical issue: by significantly increasing the cost of mortgage financing and by raising the barrier to access such easy credit," Liao said.

The Shanghai standard is less than 33.07 square meters, which can enable borrowers to enjoy discounts of up to 15 percent on the rates and 30 percent down payment as the policy for first mortgages.

"With the withdrawal of speculators and investors from the market, the resultant softening of property sales and prices, and also the impact of other new measures, potential buyers for self-use properties have adjusted downwards their projections on the outlook of property prices. This has encouraged many to take a wait-and-see approach towards buying a home in the expectation of a fall in property prices in the future," Liao said.

Property development lending has a loose relation with real estate investment in Shanghai due to the multi-financing channels of developers, the banking bureau said.

Property development investment rose to 64.33 billion yuan in the first half in Shanghai, up 3.8 percent than a year ago.

Of that, 40.74 billion yuan was for new residential projects, a year-on-year increase of 3.2 percent.

(Shanghai Daily July 28, 2008)