Seven Castles

Second Home

                                      

December 24, 2007

 

Specified in a recent notice released jointly by the People's Bank of China (the central bank) and the China Banking Regulatory Commission (CBRC, the banking regulator), the commercial banks should define a "second home" according to the property owned by the families of mortgage applicants rather than the applicant alone. A "family" includes the applicant, his or her spouse and their dependant children.

 

The notice is supplementary to the rule released by the central bank and the banking regulator in September that raised mortgage down payment for homebuyers intending to buy a second apartment or house. The new rule was designed to curb speculation in the property market. "Second" mortgage holders are required to pay a down payment of at least 40 percent and pay a 10 percent premium on their interest rate.

 

The notice says an applicant could pay a down payment with preferential interest rates on a first apartment only when the square meter per capita of the family's first apartment is lower than local average square meter per capita.

 

Just one week after defining "second home", the central bank sent another message, vowing to curb credit growth in the property sector. It is rather unusual that a top official in the banking sector admitted that speculation in the property sector is prevalent. Eight problems in the property and financial sectors were also enumerated. The remarks hinted that financial risks are piling up in the real estate sector as the complicated chain of interests threatens to break.

 

China's property market has witnessed phenomenal growth in recent years, and has become one of the most profitable sectors. In many areas this sector has become a pillar industry enjoying stalwart local government support in bank loans and land allocation. But the market has clearly departed from its normal ambit when excessive speculation and investment have steadily driven housing prices to exorbitant heights.

 

The financial sector is closely related, for bank loans are financing housing development and home purchases. Especially since last year, some banks have offered to help homeowners secure additional loans by refinancing their first mortgage loans on account of soaring home prices. These loans often help pay the second or multiple home purchases, or go to the stock market. Either way they inflate the market bubbles. For the banks, the risks are no longer incipient, but have approached an alarming level.

 

The definition of "second home" seems to be a smart move to contain the housing speculation. But will it really work as desired? People are curious to know who are those responsible for creating these problems and what are the best solutions.

【作者: zhangliping】【访问统计:】【2007年12月24日 星期一 05:17】【注册】【打印】