(Bloomberg) -- China’s central bank pledged to immediately implement new lending rules to cool real-estate speculation and one of its policy advisers said the market is having its “last madness.”
The central bank commented in a statement on its Web site last night. Li Daokui, a newly appointed academic adviser to the monetary policy committee, spoke in an interview broadcast by state television on April 15.
Asset-price bubbles inflated by a credit boom could derail the recovery of the world’s fastest-growing major economy, which expanded 11.9 percent in the first quarter from a year earlier. China’s cabinet, the State Council, announced higher mortgage rates and down-payment ratios for second homes on April 15 after property prices jumped by a record in March.
Investors “don’t realize how strong and resolute the political will is among top leaders to curb price gains,” Li said on Central Television. The market is having its “last madness” and speculation may dissipate in a year or 18 months on extra action by local authorities and an increased supply of low-price, so-called policy homes, Li said.
Cheung Kong (Holdings) Ltd., the Hong Kong developer controlled by billionaire Li Ka-shing, said yesterday that efforts to cool the Chinese property market are “timely.”
“You want to take action before the market gets too hot,” Justin Chiu, executive director of Cheung Kong, said in a Bloomberg Television interview. “Prices have gone up really quite a lot; people buying for their own use should do it within their means. If they invest, they need to be cautious about interest rates.”
Stocks Fall
Under the new rules, down payments for second homes must be at least 50 percent, up from 40 percent, and mortgage rates can’t be lower than 110 percent of benchmark rates, the State Council said. Banks should also raise down payment ratios and rates for third homes “by a broad margin,” it said.
The Shanghai Composite Index fell 1.1 percent yesterday on concern that measures to cool the real-estate market may hurt economic growth and companies’ profits.
“We don’t think that’s the end of the policy crackdown on the property market and some shoes have yet to drop,” said Larry Wan, deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million. “Property accounts for a big proportion of fixed-asset investment and if the property industry is down, the whole economy will get hurt. So will related industries such as banking and resources.”
Surging Prices
Property prices in 70 major cities surged 11.7 percent in March from a year earlier, the most since records began in 2005, government data showed last week.
In an April 15 statement after the release of first-quarter numbers for gross domestic product, the State Council said that local governments have failed to control speculation. Besides limiting the risk of price bubbles, policy makers want to keep housing affordable.
The government has yet to take another step which could help to cool the property market: raising benchmark interest rates. Instead, officials are targeting a 22 percent reduction in new loans in 2010 from last year’s record of $1.4 trillion.
In an April 14 statement, the State Council said first- quarter growth was largely driven by stimulus policies and a comparison with a low level a year earlier, signaling that officials may be cautious in withdrawing stimulus.
China’s economy is showing signs of overheating and officials may face a “grim” and difficult task in holding full-year inflation to a targeted maximum of 3 percent, said Li, a professor at Tsinghua University in Beijing. He was appointed as one of three academic advisers to the People’s Bank of China last month.
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