China's stricter test

5 August 2010 By Wei Gu

Beijing seems serious about curbing property excesses. The banking regulator ordered banks to test the impact of a 50 percent fall in house prices. A sharp drop in price will be hurtful, unless Beijing can pull off a lowcost housing scheme to keep construction going.

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China's banking regulator has instructed lenders to test the impact of a fall in house prices of up to 50 percent in key cities where prices have risen sharply, banking and regulatory sources told Reuters on Aug. 5.

Earlier this year, Chinese banks completed a first round of stress tests on their loans to the property sector nationwide, which showed they could handle a house price fall of 30 percent without a sharp rise in nonperforming loan ratios.

The China Banking Regulatory Commission also ordered banks to stop mortgage loans to people buying their third homes in Beijing, Shanghai, Shenzhen and Hangzhou. Banks must raise downpayments to 60 percent and increase the mortgage rates 50 percent higher than the central bank's benchmark rate for such property buyers in other cities, they said.

Property prices in 70 major Chinese cities fell 0.1 percent in June from May, the first monthonmonth drop since February 2009, according to government statistics. Sales volumes in big cities have also fallen sharply.

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