China links second-home mortgage to residency

Govt also spells out rules for suspension of loans to home buyers by banks

(BEIJING) China will apply its tighter second-home mortgage policies to loan applicants who fail to provide proof of at least one year of local social security contributions or tax payments, the government said.

Banks can suspend loans to such home buyers in regions where house prices are too high, rising too fast or residential property is in short supply, the Ministry of Housing and Urban-Rural Development said in a statement on its website yesterday.

China in April raised down payments for second homes to at least 50 per cent, from 40 per cent, and lifted mortgage rates for such loans to 110 per cent of benchmark rates, trying to avert a property bubble after prices rose by a record in March.

In an April 17 statement, the State Council ordered a suspension of mortgage loans to non-local residents that can't prove at least one year of social security contributions or tax payments.

'In terms of buying in non-residence cities, this amounts to a relaxation' from the State Council's rhetoric, said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co.

The new rules on second homes also will apply to people who can prove they are local residents if their family, including the borrower, spouses and underage children, either already own an apartment or held a mortgage before, according to yesterday's statement.

Before the new rules, first-home mortgage criteria was applied to citizens living in smaller-than-average spaces who wanted to buy a new home, Mr Dai said.

The latest rules 'kill' demand from people who aimed to improve their living conditions rather than to speculate, said Mr Dai.

The wording leaves little room for households that already own one 'residential suite' that is very small and need to upgrade, he added.

Minimum down payments for first homes are 30 per cent for apartments bigger than 90 square metres and 20 per cent for smaller ones.

Banks were told to apply substantially higher down- payment rules and interest rates for third homes. -- Bloomberg

Source: Business Times, 8 Jun 2010