Thursday, April 29, 2010

China suspends capital raising by property firms

Moratorium may block 110b yuan in share issues planned by 45 companies

China will place a moratorium on capital raising by real estate firms as part of a broader campaign to rein in property price rises, state media reported yesterday.

The move could stand in the way of about 110 billion yuan (S$22 billion) in share issues planned by 45 companies, unnamed sources close to the China Securities Regulatory Commission told the China Daily.

The suspension will allow the authorities to examine whether companies have used illegal methods to manipulate market prices, the newspaper said.

Beijing, wary about the risks of an asset bubble, has been trying to cool the real estate market, raising mortgage rates and down payment requirements for second homes and pushing local governments to control speculative buying.

Those steps complement general efforts to prevent the economy from overheating as it fully regained its momentum with the help of booming credit and grew nearly 11.9 per cent in the first quarter from a year earlier, the fastest since 2007.

China's banking regulator has also issued new guidelines to make it harder for property developers to obtain funding from trust companies, the 21st Century Business Herald quoted an unnamed executive at a trust company as saying.

Real estate firms seeking loans from trust firms must meet the minimum capital requirement and provide proof of their qualifications for developing a project, the newspaper said.

This would represent a clarification and tightening of rules governing the financing relationship between trust firms and property developers. Real estate firms have been turning to trust companies because they have looser capital requirements than banks.

Share prices of Chinese property firms have tumbled over the past week, dragging down the main stock index in Shanghai to its lowest level in more than half a year.

But the formation of a property bubble in China has become one of the major risks to sustainable economic growth, the Development Research Centre, a think-tank under the State Council, said yesterday.

In its report, published in the China Economic Times, it said that steps taken in recent months by the government had not yet succeeded in tamping down on surging property prices.

'If the controls are not forceful, with our country's growth and development clearly outstripping that of other countries, hot money inflows will quicken and excessive domestic liquidity will increase, progressively inflating asset bubbles,' it said. -- Reuters

Source: Business Times, 29 Apr 2010

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