Shanghai has raised the ceiling of mortgage lending in the city's housing fund program by as much as 20 percent for some households in a bid to boost the local property market where home sales have tumbled.

The new rule, effective on Wednesday, only applies to those households which contribute a higher rate of their salary to the public housing fund and with at least two people to cover the repayment.

These families can get a maximum loan of 600,000 yuan (US$87,847), up from 500,000 yuan, for their first private property, the Shanghai Provident Fund Management Center said.

In Shanghai, people covered by the public housing fund system, which gives a favorable lending rate, pay between 5 percent and 7 percent of their monthly salary to the fund and their employers are required to match the amount their workers contribute. Employees can also pay an extra 1 percent to 8 percent of the monthly salary to the fund.

Those covered in the housing fund program pay 5.22 percent for a 10-year housing loan while home buyers taking from a commercial bank pay 7.83 percent for a loan of the same duration. Analysts said the change to the ceiling of mortgage loans may give a lift to the sluggish housing market but the effect will be limited because they believe that not many people are willing to pay the additional rate into the fund.

According to the center, the housing fund covered 3.42 million people at the end of June and only about 8.8 percent of them paid extra money into the fund.

Eric Ding, 29, who is looking to buy a home, said: "I hope the government can release more effective policies like a reduction in taxes to help lower costs of a property purchase."

The latest move shows Shanghai has joined other local governments in the country by taking measures to boost demand.

On Tuesday, Hangzhou in Zhejiang Province announced a package of policies to stimulate its property market. It introduced a property tax rebate and allowed home buyers from other areas to obtain a local residence certificate. Sales of homes had dived 46 percent from a year ago.

Other cities like Changsha, Shenyang and Chengdu also have measures to bolster their local property market by scrapping property tax, extending loan maturity or lowering the down payment requirement.

The central government sees the property market as vital to sustain domestic economic growth and the sector is also seen as one means to boost domestic consumption to balance weaker exports and investments.

In Shanghai, housing prices fell 19.5 percent in the third quarter from the previous three months as transactions plummeted. Sales did not recover even in the golden season in September and October, Centaline Property Agency Ltd said in a report.

(Shanghai Daily October 16, 2008)