For Chinese local governments, loosened lending to home-buyers might be working a little too well

New local government policies are making it harder for people like this couple to buy.
New local government policies are making it harder for people like this couple to buy.
Image: AP Photo
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In a sign that China’s home loan market is heating up once again, municipal government regulators in three of China’s richest provinces are tightening credit availability, reports the Financial Times (paywall).

The local government of Kunshan, Jiangsu province, said that starting next Monday, applicants must have contributed to something called the “housing credit fund” for more than a year to be eligible for loan assistance. In the past, residents only needed to pay in for six months to qualify. In addition, Guangdong’s Dongguan and Jinhua in Zhejiang province limited the amount that residents would be able to borrow from their housing credit funds.

It’s unclear whether these rules augur broader restrictions of the Chinese property sector or whether they reflect as-needed tweaks to local-level lending as real estate demand rises. The property sector is both highly political and a source of crucial economic growth—forces the government is at pains to balance as the advent of high-profile political meetings known as the National People’s Congress and the Chinese People’s Political Consultative Conference, which are held in March each year, draw near.

The new policies set by the three cities involve a fund that subsidizes mortgage payments of first-time buyers. After the central government tightened policies in 2010 due to soaring housing prices in many cities, local governments turned to those funds to tweak lending policy. In short, many made housing credit funds more readily available to first-time buyers while still keeping central government-set controls in place.

This, along with the loosening of monetary policy in mid-2012, has helped China’s real estate sector to pick up speed heading into 2013. As the FT points out, prices on new homes jumped 1% in January, month-on-month, marking the largest rise in two years. Meanwhile, January home sales transactions increased in 21 out of 27 cities tracked by the China Index Academy—and more than doubled in 14 of them, reports Morning Whistle.